The world grain market is moving from tightness to surplus, says Bruce Burnett, the Canadian Wheat Board’s director of weather and market analysis.
Global crop production in 2011 was adequate and 2012 looks like it might help build a surplus if yields are normal, but it is too early to talk with any authority about a northern hemisphere crop that is several months away from seeding.
“Weather can change that and can change it really quickly,” he told farmers at Crop Production Week in Saskatoon.
The areas to keep an eye on are Ukraine and Eastern Europe, the U.S. southern Plains, North Africa and the western half of the Canadian Prairies. All might face dryness problems.
Winter wheat seeding generally increased last fall in the northern hemisphere. The U.S. winter wheat acreage appears to be up by three percent to 41.9 million acres.
“Prices in (the fall) were still relatively high. In the U.S., prices that their crop insurance program would pay were high so that encouraged acres to go in.”
Good rain in the late fall in the U.S. southern Plains improved the condition of the winter wheat, which had been seeded into dry soil caused by a long-term drought.
The winter wheat crop in Ukraine and Eastern Europe also suffered from dryness, which prevented some of it from germinating.
There is no snow cover, which has not been a serious problem because the winter has been mild, but if it turns colder it could cause damage.
“In Ukraine, about 30 percent of the crop is looking really rough,” he said, but added winter wheat is the crop with nine lives.
Russia’s winter wheat is in good shape, as is the Western European crop.
The CWB sees world wheat production falling to 677 million tonnes from about 689 million last year because of a return to normal yields. Consumption is also expected to fall — to 673 million from 681 million — because less feed wheat will likely be produced. The result would be an increase in global ending stocks to 211 million tonnes from 207 million at the end of 2011-12.
“To get independent support for wheat, support apart from any other commodity, we definitely need some problems,” Burnett said. “It is something we are going to have to bide our time on to see what happens.”
The problem in Ukraine and Eastern Europe is not yet enough to strengthen wheat prices.
World production would have to fall from current projections by 15 million tonnes to give wheat independent strength.
“It is hard to find that (level of decline) in one country.”
Durum prices trade relative to spring wheat. A large premium built up last year when many Canadian and American farmers were unable to seed durum because of wet soil. That premium is falling but has not disappeared.
“We expect that to continue for a while, at least until we see next crop year’s seeding figures,” Burnett said.
The CWB expects to see more durum acres this spring in North America, thanks to better seeding conditions. European acreage should also increase.
The North African crop is already growing and acreage has increased.
However, it has been dry in the region since mid-December, normally a month when rains are the largest of the growing season, so that situation bears monitoring given that the region is often Canada’s largest durum customer.
“Unless they pick up some moisture at the tail end of their growing season, they are going to be in some trouble.”
While the CWB expects more durum acreage, it also sees stronger demand and so doesn’t expect stocks to increase by the close of 2012-13.
The barley market is characterized by tight supply in North America and Europe but improved supply in Australia and Argentina.
Burnett expects supply and de-mand will be in rough balance in 2012.
“There is nothing very bullish about this, nor is it very, very bearish.”
Ukraine could be the wild card. If the winter gets cold and severely damages the winter wheat, the crop likely to replace it in the spring would be barley, potentially marking a large production increase.