An expected pickup in North American wheat exports and continued worries about the condition of the U.S. hard red winter wheat crop could rally that crop’s price this winter.
It could present a good opportunity for pricing a portion of the 2013-14 crop.
That was the message I took away from Bruce Burnett’s presentation at Crop Production Week.
Burnett, CWB’s director of weather and market analysis, was one of the more bullish presenters during the week, with upbeat predictions for wheat and canola, although there were qualifiers.
Wheat prices received a boost on the morning of Burnett’s talk when the U.S. Department of Agriculture surprised traders by estimating the hard red winter wheat area planted in the fall of 2012 at 29.1 million acres, about a million less than what traders expected.
Also, the crop went into winter dormancy in terrible condition with South Dakota, Nebraska and northern Kansas in a particularly bad state. Burnett believes the top end of the potential yield range is no longer possible, even if the weather changes in the spring and rain returns to the area.
There is also potential for freeze damage in wheat in southern Russia because recent warm weather has melted the protective blanket of snow there.
These production risks support wheat prices, and further support will come from an expected pickup in North American wheat exports, Burnett said.
The Black Sea region is mostly out of the market now, and Argentina’s crop was well below normal. Australia’s crop is about average. As a result, North America will be the only supplier with lots of wheat on hand for the next few months.
If prices rally, it appears to me to be an opportunity to price some 2013 crop because there are also downside risks.
The market could move lower in the spring if the U.S. winter wheat crop starts to get rain. Also, CWB expects world wheat production will rise in 2013-14, putting limits on prices.
Burnett doubts there will be a wheat price crash, but there could be downward pressure.
The durum outlook is not bullish because global supply has not contracted. With no supply problem, durum has become a follower of wheat.
A durum rally would be triggered only if North Africa, a major durum importing region, has production problems. It turned dry there in December, and Burnett said he would be monitoring the region closely.
CWB began marketing canola this year, and Burnett said the immediate outlook for the oilseed is good.
If the Statistics Canada 2012 crop estimate of 13.3 million tonnes is correct, then there is a danger of running out of canola if the domestic use and export pace of the first half of the crop year continues into the second half.
Domestic crush is already 400,000 tonnes ahead of last year, and the export pace is only slightly behind.
Higher canola prices are needed to ration demand.
Burnett also said the oilseed market has been consumed with monitoring the Brazilian soybean crop, which looks like it is headed for record production.
However, he suggested market watchers cannot lose sight of the fact that Chinese soybean buying is also record large.
CWB expects Canadian canola area to fall seven percent to 20 million acres in 2013 but yields to rebound 16 percent to 32 bushels an acres. That would produce a 2013-14 crop of 14.46 million tonnes, up from 13.3 million this year.
However, even with a larger crop, the small carry-in and prospects for good demand next year would mean stocks at the end of 2013-14 would barely rise, meaning prices should remain well supported, he said.
Speaking of all crops generally, Burnett believes world stocks will not return to comfortable levels, even with average production in 2013, which makes predictions of sharply lower prices unlikely.
And the potential for rallies remain with the dry weather in the United States, developing dryness in North Africa and the potential for winterkill in southern Russia wheat.