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Supply and Demand
For those of you who have been in the organic grain industry for a while, you know that when it comes to market intelligence around organic grain pricing and demand that there is a dearth of reliable information. This is the main reason that we started the Organic Grain Hub. To succeed in any business, you need reliable data. In this article, we interviewed informants in different parts of the country to find the key variables impacting the sector.
Of course, we’re talking about agriculture, so weather is always the biggest factor on the supply side of the equation. While producers can often recall in great detail what local weather was like in the spring of 1999, they are less attuned to the weather of our major competitors.
Weather factor: Drought in the West and torrential rain in the East. Let’s start with Canada. For much, if not most of the country, weather was less than conducive to producing crops that could reach their yield potential. While there was good moisture in the preceding fall and decent snow cover in most of the Prairie, there was little precipitation during and shortly after seeding. Some of the major grain growing regions of Eastern Ontario and Quebec were facing the opposite problem. For example, producers in Lac Saint-Jean, a major organic grain growing region in Quebec, were faced with torrential rains that flooded newly seeded fields. In addition to heavy rains, Quebec’s grain growers were also plagued by May frosts and smoke from fires that blocked the sun’s rays during much of the growing season.
While Saskatchewan, which produces the lion’s share of Canada’s organic grains, received some rain in June, the overall seasonal water deficit was significant, particularly in the southwest, creating growing conditions that some producers described as worse than the drought of 2021. Large parts of central and western Alberta also faced precipitation levels that were between 40 and 60% of normal.
Figure 1. Percent of Average Precipitation
Source: Government of Canada, downloaded October 13,2023
As they watched their crops wither, some farms in southern Saskatchewan were pounded by hail. Later in the summer, grasshoppers, waiting in the wings (or on their wings), moved in to polish off the rest of the crop. The Saskatchewan Government did increase their crop insurance payouts this year for organic producers and no doubt many farmers will benefit from that, but of course the higher premiums likely meant fewer farmers participated in the program.
Conditions in US grain growing regions were a mixed bag with severe drought in the south and central Great Plains to nearly ideal rain and temperatures in the northern plains and Pacific Northwest, which collectively produced some decent quality and volume crops.
Other major organic grain production regions include South America and Europe. Argentina is coming off three years of drought, including the worst in 60 years. This will have a considerable impact on the global supply of organic corn and soy, but wheat is also grown in the region. In recent years, Eastern European and Southeastern Asian countries such as Ukraine, Russia, Poland, Romania, Uzbekistan, Turkey, and others have become major international players in organic grain production. The weather seems to have been conducive to grain production in much of this area, with better-than-expected harvests in Turkey.
Canadian organic acreage on the decline The second factor to consider on the supply side, is organic acres. According to new 2022 data from the Canada Organic Trade Association (COTA), Canada has lost 250,000 organic field crop acres since 2020. The 2022 total was 1,352,891 acres. We do not have access to the provincial data so cannot tell you for certain where these declines occurred. However, there is general agreement that these losses are largely in theCanadian Prairie. Some farmers have left organic simply because it was time to retire, but for many organic producers battling both the elements and the markets, it was getting too hard to make a living. For some, the dryness, the hail and the grasshoppers of 2023, were the last straw and we expect that we have not seen the end of the exodus. It is hard to estimate acreage losses, but experts are telling us that regions such as McKenzie County in the northern reaches of Alberta may have lost as much as 50% of their production capacity. It is likely that the rest of the Prairie has lost as much as 15% of organic acreage, losses not seen since the recession of 2008-2011.
In a typical supply-demand scenario, losing supply usually means increased demand and increased demand means higher prices.In this situation though, we must examine other factors that influence global and local demand such as political and economic factors. Right now, we have plenty of both. The world is in turmoil with wars breaking out in many regions, while Canada’s relationships with a few key organic trading partners are disintegrating. The economy, though managing to avoid a global recession, is still in contraction. On the upside, we have survived COVID and have largely sorted out our transportation bottlenecks with the availability and pricing of trucking and shipping approaching pre-COVID levels. In fact, with the shortage of grains in the Prairie, trucking companies are proactively reaching out to grain buyers for business, and nobody is yelling at CN and CP rail for failing to deliver grain. Closure of the Port of Vancouver this summer due to a labour dispute did, however, create some challenges for grain shipping.
On the political front, the war in Ukraine cannot be ignored. Ukraine is a major producer of organic grains including wheat, sunflowers, flax, and other crops. See our story in this issue for details on how trade disruption with Ukraine and the other embargoed countries in the region impacts international flows of organic grains.
Canada’s deteriorating relationships with China and India will no doubt have ongoing repercussions for trade with both countries. The not so hot Chinese economy may have an even larger impact on trade, especially for some products. For instance, in 2022, China imported $43 million worth of organic grains from Canada, 11% of our total organic grain exports in that year. The top three imports make up most of this ($40 million) and include yellow peas ($31.6 million), soybeans ($6.4 million) and hard red spring wheat ($3.3 million). In July 2023, organic grain exports to China were down 14% from $13.8 to $11.8 million compared to the same month in 2022. Check out our story here in this issue on organic grain exports for more detail.
On the demand side, we also need to look at what consumers are doing. In times of belt-tightening, the first thing to go is luxury products. If organic is perceived as a luxury food item at a time when your grocery bill is at an all-time high, you may rethink whether you can afford that luxury. On the other hand, if we learned anything from the COVID years, it’s that some Canadians and others around the globe don’t view organic as a luxury; but rather as the only kind of food that they want to put in their basket.
Amid this doom and gloom, we want to remind those of you that remain committed to the organic production system and the important values that underpin this way of producing food for the world, that this is not our first rodeo. Organic prices and demand go up and down, but one thing remains constant: the consumer appetite for organic foods remains rock steady. Globally and in Canada, organic food purchasing continues to rise. Almost since we began growing food under a regulated organic model in the 2009, consumer demand has outstripped production by a mile. The one- and only-time consumer demand ever declined was during the last global economic recession. Based on this history, we know that if you can hang in there, the market will go up again. Globally, in 2021, the total global organic market was worth $177 billion. In 2022, the US organic market topped $76 billion, with sales of potatoes, grains, and rice up 10% over 2021 to $489 million. Canadian sales also rose in the same year to $8 billion, up 15% since 2017 and making Canada the 5th largest market for organic products globally.
Detailed Analysis of Current and Expected Demand and Pricing for Canadian Organic Grains
In general, prices for most organic grains are decent, but whether you agree with that statement will depend on whether you are a buyer or a seller. However, movement of organic grains remains sluggish compared to harvest time in previous years as buyers wait for signals about organic grain availability and quality. Many buyers have overbought, sometimes at higher prices. This will keep them out of the market for a while, but they will be back in business once they run out of ingredients.
Below we provide details on a few of the grains commonly grown on organic land in Canada. We will profile different crops in future issues.
The price of Canadian feed grains largely turns on US prices for organic yellow corn and soybeans. In the past five years or so, corn and soy prices have been relatively high, largely because of the large US organic broiler and layer industries. More recently, because of the economic squeeze which has caused consumers to decrease their meat intake in combination with widespread avian influenza outbreaks, poultry numbers have been trending down. A second factor is a dramatic increase in production of these two crops in the US. In 2021, the US reported 374,977 ac (45 million bu) of organic grain corn, up from 319,953 ac (32.3 million bu) in 2019 and 250,495 ac (9 million bu) of soybean, up from 170,074 ac (5.5 million bu). As a result of this supply-side dynamics, recent prices for corn ($9 USD) and soy ($22 USD) are down relative to last fall’s prices of $11 and $22 USD, respectively.
However, despite large increases in domestic production, the US continues to import large volumes of organic corn and soy. In 2022, the US imported 684,038 MT of raw organic soybean from all countries. They did not import any organic soybean meal, or at least they were not tracking it. As of August, 2023, 257,665 MT of organic soybean meal was imported, along with 422,822 MT of raw organic soybeans.
In 2022, Canada exported 27,319 MT of organic soybeans to the US, only 8% of that country's total soybean imports that year, but it represented 38% of Canada’s total organic soybean exports. This share dropped to 4% between January and August of this year. Peak organic corn imports to the US occurred in 2020, with 425,108 MT. As of August 2023, organic corn imports totalled 152,249 MT. In 2022, Canada was responsible for the second largest volume of organic corn exports to the US after Romania with 61,254 MT, representing 38% of total US organic corn imports. That share rose to 41% of total US imports (31,453 MT) between January and August of this year. This represented 90% of Canada’s total organic corn exports that year.
At this moment, median prices for feed wheat are pretty decent at $13/bu in the Prairie. However, we may see a flood of poor crops from areas such as southwestern Saskatchewan and central Alberta hitting the market soon - a factor that would, if it happens,erode feed grain prices.
Lentil production is more consolidated than almost any other crop, with a large chunk of the global supply produced in Saskatchewan, the world’s leading producer. And, unfortunately for lentil eaters, many of these growers are in the southwest part of the province hit hardest by drought and hoppers. The conventional lentil crop is yielding about 15% less than the five-year average, but given that there are no effective organic grasshopper controls, performance was doubt worse in organic crops.
According to COTA, going into the 2023 harvest, Canadian organic lentil acres were already in decline, with 24% fewer seeded acres in 2022 than in 2020 (40,582 ac in 2022 versus 53,120 ac in 2020).
The US grows organic lentils on less than 2,000 acres on only 15 farms.sAs far as we know, there is no backup global supply as significant as that of Saskatchewan, although we know Turkey is producing some lentils organically and selling them to US buyers.
This means, if you’re sitting on some lentils, no matter the type, you’re perched on a gold mine. Prices for all types of organic lentils have started to move northward with reports of $1.45 lb for French Greens and $1.25 for black lentils.Conventional red lentils are currently trading at around 0.38/lb, representing over a 300% premium. Prices will no doubt continue to rise if our current expectations of an abysmal crop actualize.
Hard Red Spring
According to the recent COTA data report, total organic wheat acres in Canada were 311,162, which was up very slightly from the previous year, but down very significantly (by 139,104 acres or 31%) since 2020.
Reports coming out of the Canadian Prairie so far this fall seem to indicate that we are going to harvest a much-diminished hard red spring wheat crop. Although this crop is more regionally diversified than lentils, still, the vast majority of hard red spring wheat is grown in Saskatchewan, and much of the wheat grown in the south-southwest region was decimated by grasshoppers. According to Saskatchewan’s organic production specialist Dunling Wang, grasshoppers love cereal crops and 2023 was a bumper year for them with high winter snowfall providing perfect cover for fall-laid eggs. Dunling expects grasshopper pressure to be high next year as well.
Unlike Canada, by all accounts, the US put a decent organic wheat crop in the bins this fall with reports from North Dakota of higher-than-average yields with protein averaging around 14%. The country grows 376,682 acres (12.2 million bu) of wheat of all types of which about 126,189 ac is spring wheat and 241,452 is winter wheat. The size and quality of the US crop impacts demand for Canadian wheat. Most of the US hard red spring crop is grown in a few northern Midwest and western states.
US supply matters because leading up to harvest 2023, the US was the largest global buyer of Canadian hard red spring wheat. At the end of 2022, the US purchased $9.1 million of Canadian organic wheat, representing 34% of global organic wheat exports worth $26.8 million that year. In July 2023, just over halfway through the year, exports to the US surpassed the value for the entire 2022 year to $11.9 million, a whopping 67% of total global exports of $17.7 million. We will have to see if US wheat imports from Canada decline because of an increasing domestic supply of organic wheat.
The loss of a significant proportion of organic grain exports from the Ukraine and Russia on global demand for organics also cannot be ignored. In 2022, the two countries were responsible for 30% of global exports of wheat. Most of the crops from this region were sent to Europe. While some of that crop is still making it to Europe, the war and transportation embargoes are impacting volume, and it is an open question about how Europe will make up the shortfall for wheat and other organic crops. This could be an opportunity to increase Canadian wheat exports to Europe.
Prices for organic hard red spring wheat are currently very decent and are expected to rise as a result of shortfalls in the Canadian Prairie. Countries around the globe, even those that produce their own wheat, rely on Canadian Prairie hard red spring wheat in their flour mixes to enhance the baking properties of bread and other baked goods. Millers in Eastern Canada also rely on Prairie hard red spring wheat for their flour mixes, often blending these with eastern winter wheats to get the protein and baking characteristics they want.
Durum is used primarily for pasta, couscous and bulgur, although it also has applications in the baking industry. Canada is the globe’s largest producer of Durum wheat. Organic Durum is grown on approximately 22,000 acres in western Canada with about 77% of this crop produced in Saskatchewan (2020 data). In 2021, the US grew organic Durum on 9,041 acres on 44 farms, totalling about 242,000 bu of production. In 2019, the same number of farms grew 11,076 acres of organic Durum, producing 565,562 bu of crop.
Unfortunately, as we note in our previous comments on lentils and hard red spring wheat, most Durum is grown in Saskatchewan, although Alberta also grows some organic Durum wheat. Given that both areas were subject to drought and other natural disasters, we expect production to be down, perhaps by as much as 20%, while estimates suggest that US production will also be down by as much as 10%.
One organic grain buyer recently suggested that there is a decline in demand for organic Durum wheat from North American millers due to its high price (the median price in the organic grain hub is just under $28/bu) and this had led some North American mills to quit milling organic Durum. This theory is borne out by US import data. The US is Canada’s second largest market for organic Durum wheat, accounting for 40% of our total Durum exports in 2022 and 34% in 2023. The US has been decreasing organic Durum imports since 2020 when 42,740 MT were imported. In 2022, imports were down to 4,697 MT, 99% of which was from Canada. As of August 2023, US imports have increased slightly to 6,963 MT, all from Canada.
This shift away from organic Durum may be confined to North America. In some European countries, such as Italy, regulatory standards require pasta to be made with 100% durum semolina. Globally, Canada’s exports have been climbing. As of July, the value of total organic Durum exports exceeded that for the entire previous year by 8%. Forty three percent of 2022 organic exports went to Belgium ($5.7 million) and so far, 44% of 2023 exports have also gone to Belgium ($6.5 million). Given that Europe currently imports much of its organic Durum either from Canada or from areas of eastern Europe caught up in the Ukraine war, European demand for Canadian Durum will no doubt increase in 2024.
According to at least one buyer, there is current demand for organic spelt and Khorasan (the trademark name is ‘kamut’). Canadian exports in the ‘other wheat’ category which is a general category for any wheats that are not hard red spring or Durum, have fallen off in 2023, relative to 2022. From January to July, the value of exports in this category was $2.8 million, versus $10.7 for the entire 2022. 2022 looks to be an aberration though, with a previous three-year high of $2 million in 2020. Ninety-eight percent of 2022 exports went to the US with much of the rest headed to Italy.
Given these small export numbers it seems very likely that organic wheat in this category is largely consumed domestically. Canada does have a health wheat milling sector with at least three large mills and many smaller ones that focus on stone grinding specialty organic wheats.
The market for organic yellow peas wasmoribund for a quite a while, but according to reports from organic buyers, appears to be picking up. Key reasons for the decline appear to be declining enthusiasm for plant-based foods, in which yellow peas represent the most used ingredient, and political tensions between Canada and China. Despite considerable hype, none of theNorth American pea protein extraction companies have become serious purchasers of organic yellow peas although several continue to purchase a trickle of pea ingredients. The volumes used by these pea fractionators pales in comparison to exports to China, which has the globe’s largest concentration of pea fractionators. In 2021 and 2022, Canadian organic pea exports to China totalled $30 and $31 million, respectively. In 2023, export volumes slowed with only 40% of the 2022 total value by the end of July. Yellow peas represent 77% of Canada’s total organic exports to China as well as 77% of total organic yellow pea exports globally.
Organic pea buyers believe that Canada does not have a significant surplus of organic yellow peas in bins and that this commodity will continue to be in some demand in the months to come.
For many years, brown flax had the most stable price of all organic grains at around $34 a bushel. The price for golden flax has always been more labile due to a smaller total volume. Last year, something changed, and this balance was thrown out of whack. Prices skyrocketed, and then reset at below $34. Now, both price and demand are picking up. Recent prices collected by Organicgrainhub.com show a median price of $49, with a range between $41 and $60/bu.
In 2022, according to COTA, organic flax acreage was 52,254 acres, down from 64,438 acres in 2020 (down 12,184 ac, or 19%). Although of course nobody knows, there is a general sense that the organic flax crop from the Canadian Prairie is very small in 2023. Buyers seem uncertain about where to set their prices. If it turns out that the crop is as scarce as we think it is, there is no doubt prices will rise in the months to come.