* Canada's crop smallest in 9 years
* Mustard buyers paying highest spot prices in years
* Bigger plantings needed to replenish supplies
* Spillover effect on wasabi for sushi lovers
By Rod Nickel and Luc Cohen
WINNIPEG, Manitoba/NEW YORK, Oct 22 (Reuters) - From Canada
to India, there is a squeeze on mustard that has put producers
in a pickle.
Prices of the yellow condiment dabbed on hot dogs and
pretzels have leaped to their highest level in seven years this
autumn as growers in Western Canada, which supplies
three-quarters of the world's traded mustard seed, turn in their
smallest crop in nine years.
In India, the price of a contract representing both mustard
seed and rapeseed, related crops grown in the same areas, has
surged by a fifth to record highs in the past three weeks over
fears that unseasonably hot weather will prevent sowing that
would normally begin later this month.
The higher prices threaten to drive up costs for Kraft Heinz
Co KHC.O , maker of Grey Poupon, and Reckitt Benckiser Group
Plc RB.L , maker of French's, which hold more than 40 percent
of the market share for North America's fourth-favorite
condiment by sales according to some estimates.
But it is smaller producers like Barhyte Specialty Foods in
Pendleton, Oregon, that are feeling the most immediate pinch. It
lost customers after raising its price on organic brands to
cover the cost of buying extra supplies from Canada.
"We took a big spike this year," said Chief Executive Chris
Barhyte, whose company makes private label mustard as well as
its own Suzie's brand. Although the bulk of his mustard seed
comes from domestic farmers, he increased purchases from Canada
to meet heightened demand for organic products that now make up
roughly 40 percent of his overall needs. Prices for Canadian
organic seed were nearly 30 percent higher than in past years,
he said.
While farmers savor rising prices and food makers bemoan
higher costs, those hurting most may be the middlemen who buy
crops from farmers on the spot market to meet forward sales.
Some exporters are "panic buying" due to scarcity, said Bob
Waldbauer, director of mustard seed sales at BroadGrain
Commodities in Dafoe, Saskatchewan. "It's not a matter of price,
it's a matter of supply."
He declined to name any specific firms. The biggest exporter
to the United States is Viterra Inc VILC.UL , a Canadian grains
trader owned by Swiss mining and trading firm Glencore Plc
GLEN.L , according to data from PIERS. Company representatives
did not respond to requests for comment.
To be sure, ructions in the niche mustard market barely
register amid the meltdown engulfing far larger commodities.
U.S. imports of mustard seed came to just $52 million last
year, almost all of that from Canada, and the entire U.S. retail
market is worth about $430 million, according to Euromonitor.
Consumers may barely notice, as seeds make up only 15 percent of
the average retail price for a bottle of mustard, said Walter
Dyck, seed division manager at Wisconsin-based mustard
manufacturer Olds Products Company.
The crop is a mere blip on the Canadian Prairies, where
farmers planted 75 times more wheat than mustard this year.
BLAME CANADA
The problem emanates from Canada, where farmers sowed only
325,000 acres (131,523 hectares) of mustard this year, less than
half the 2003 record high. It has fallen out of favor with many
farmers for relatively lower returns.
In addition, dry weather cut yields, producing only 109,300
tonnes of mustard this year, down 45 percent from last year's
output, according to Statistics Canada.
Processors have recently paid farmers 45 to 50 Canadian
cents per pound for yellow mustard seed on the spot market,
where they are likely to source about half their supplies this
year, Dyck said.
"It's really, really tight."
The impact is felt most keenly in the United States, where
local production covers barely a tenth of domestic demand. The
rest is imported from Canada, with shipments up 15 percent this
year, according to U.S. International Trade Commission data.
Big, diversified food companies have been partly protected
from this year's rise, thanks to extensive advance purchases,
but next year may be a different story, as high spot prices
influence a new set of supply contracts.
"Clearly when the price goes up, things change. Demand and
price go hand in hand," said Elliott Penner, president of
French's Food Company, which commands 30 percent market share
with sales of $132 million, according to Euromonitor.
"It's competitive as hell."
Kraft Heinz's Grey Poupon, which is second in the market
with 11.5 percent, is also competing for more seeds, and
launched a strategy this year to boost mustard sales. Kraft
Heinz declined to comment.
ConAgra Foods Inc (N:CAG) CAG.N , whose Gulden's brand is third at
6 percent, said it had not experienced any disruption in
production.
WASABI WOES
Beyond North America, the mustard squeeze is being felt in
India, where a futures contract on the local NCDEX exchange
NRSc1 tracks both rapeseed and mustard seed. The two crops are
similar, although not usually interchangeable.
Prices have surged over 20 percent in the past month and hit
a record high at 5,120 Indian rupees ($77.26) per 100 kg earlier
this week due to unseasonably high temperatures.
The woes may touch budget-conscious sushi lovers who could
pay a fraction more for their spicy green condiment. True wasabi
is a rare and expensive plant, so producers often opt to make a
substitute with a mixture of horseradish and so-called oriental
mustard, which is in even shorter supply than the standard
variety.
Richard Marleau, who grows mustard near Aneroid,
Saskatchewan, is in no hurry to sell his crop as prices climb.
"It's nice to see prices rise finally so a guy can get
rewarded for what he does," Marleau said. But processors'
current bids for next year's output may not cut the mustard
against lofty prices of lentils and other niche crops, making it
doubtful that bigger plantings will replenish supplies.
"They're going to be in the same situation," he said.
($1 = 64.7716 Indian rupees)
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Graphic-U.S. mustard seed imports http://link.reuters.com/myj85w
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