Tough competition | Black Sea wheat might squeeze Canada out of low value markets
Analysts gave farmers a generally dour outlook on cereal grains at Grainworld this year, with heavy supplies making price gains difficult.
Increasing production in major wheat exporters will create a competitive market for sales, and im-proved weather in North Africa reduces the chances that its durum demand will be as robust as during last year’s drought, analysts said during a panel discussion.
If Canada produces 24 million tonnes of wheat in 2013, it will probably need to export 15 million tonnes, said Lawrence Yakielashek of Toepfer, an international grains marketer.
That’s going to be a challenge if production recovers in Russia, Ukraine and Kazakhstan and India produces another big crop, he said. Only six to seven million tonnes can be sold to the top-paying markets like Japan, the United States, Europe, Indonesia and China.
“That means we’ve got to export roughly another eight million tonnes to markets where we’ve got competition with other people in the world,” said Yakielashek.
Since those markets won’t pay extra for high quality wheat, farmers could be better off growing higher-yielding, lower quality wheat types, he said, repeating an argument he made at the 2012 Grainworld.
If the world won’t pay for the best hard red spring wheat, why not grow more profitable types of wheat?
Yakielashek admitted that the tight price spread between low and high quality wheat is partly due to the drought that hit U.S. hard red winter wheat, but he said he believes that even in most normal years, there is often only a $1 per bushel premium for high protein wheat, and farmers can often net more from higher yielding, lower quality wheats.
With Russia’s wheat production likely to grow by 15 million tonnes this year, Ukraine’s to increase by five million and Kazakhstan’s to jump by six million, Canada will find aggressive competitors.
It will also have to get used to Indian grain exports, because the country hopes to export eight million tonnes in 2013.
John Griffith of American grain company CHS gave a cautiously optimistic outlook for durum, but warned farmers against too much hope for a major independent rally.
Rainfall in North Africa is slightly below normal in many areas, but not nearly as dry as last year, which created a need for imports in 2012-13.
However, if farmers in Western Canada cut durum acres, the supply and demand situation could become more bullish.
Durum supplies are adequate but not onerous “and are just enough to serve the market’s needs,” said Griffith.
Earlier in the day, FarmLink Marketing released its estimates for spring planting, calling for an 8.1 percent reduction in durum seeded acreage this spring.
“The market needs production from Canada,” he said.
Durum has disappointed farmers this year with little or no premium compared to spring wheat. Griffith acknowledged that this wouldn’t encourage farmers to grow the crop this spring.
Durum could regain its typical premium, he said, but it would probably happen if the price of other crops like corn and soybeans fell, rather than by an independent price rise by durum.