Boston, MA -- (SBWIRE) -- 04/30/2014 -- Canada's position in the global grain market was reinforced in 2012/13 owing to better-thanexpected wheat and corn production and in a context of tight supply from other major producers. For 2013/14, the country's position has been stronger at the start of the season, when it was competing with the US and Europe, but has lost strength, as it is now competing with eastern Europe. We believe the Canadian beef and pork industries will gain the most from having signed the EU-Canada Free Trade Agreement in October 2013. The dairy management system, however, could be under pressure.

- Wheat production growth to 2017/18: 17.6% to 32.0mn tonnes. Liberalisation of the Canadian Wheat Board will increase competition between exporters and encourage farmers to boost production.
- Sugar consumption growth to 2018: -8.3% to 1.0mn tonnes. We are moderately bearish on sugar consumption in the medium term on the back of already high per capita consumption and changing eating habits towards healthier options.
- Poultry production growth to 2017/18: 10.3% to 1.2mn tonnes. This will be due to consumers' perception that poultry is a healthier meat, along with increasing export opportunities. High poultry prices and the recent signing of the EU-Canada Free Trade Agreement are also expected to stimulate production.
- 2014 real GDP growth: 2.1% year-on-year (y-o-y). An increase compared with 1.7% in 2013.
- Consumer price inflation: 1.7% y-o-y in 2014. An increase compared with 1.0% in 2013.
- BMI universe agribusiness market value: 2.5% y-o-y increase to US$48.8bn in 2013/14. Forecast to increase by an average of 2.2% annually between 2012/13 and 2017/18.

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Industry Outlook

We have revised down our forecast for Canadian wheat production in 2014/15 to 30.0mn tonnes (from 32.0mn tonnes previously) in line with first plantings estimates from farmers in the country. Our revised forecast, which represents a 13.5% y-o-y output decline, largely reflects expectations for a decline from 2013/14's strong yields as well as a drop in sowings by 536,000 hectares. Indeed, huge supplies left over from last season are likely to depress prices and spur farmers to switch to other crops. Local industry sources have indicated that wheat stocks at the close of the 2013/14 season are at a 31-year high of 11.5mn tonnes.

Dairy companies have recently suffered from increases in farmgate prices, and only some of them managed to increase dairy product prices enough to prevent massive falls in margins. In fact, Dairy Crest and Dean Foods, which are the least diversified of all the dairy groups and sell lower value-added products, saw their margins plummet in recent quarters. Dairy Crest reported operating margins of 4.1% in H114, compared with 6.2% in H112, while Dean Foods reported margins of 1.5% in Q313, compared with 5.9% in Q312.

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