Rallying wheat prices are finally showing up in the Canadian Wheat Board’s Pool Return Outlook, but they’re making their mark on the PRO for 2006-07, not the crop year that ended this week.
The board bumped up its monthly PRO for wheat for the new crop year by $9 a tonne for No. 1 CWRS 13.5 to $216 a tonne.
Meanwhile, it reduced the PRO for 2005-06 by $3 to $198 a tonne.
Farm groups have criticized the board because the 2005-06 PRO remained flat throughout the spring and early summer while wheat prices on U.S. futures markets were steadily climbing because of drought concerns.
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For example, while the December wheat contract on the Minneapolis Grain Exchange climbed by 28 percent between January and July, the PRO declined by 1.5 percent during the same period.
That prompted the Western Canadian Wheat Growers Association to issue a News release
news in mid-July accusing the board of failing to take advantage of the rally in wheat prices and costing farmers millions of dollars in potential revenue, both through the pool and the board’s fixed price contracts.
“It’s a huge amount of money to be leaving on the table,” said association president Cherilyn Jolly-Nagel.
However, CWB marketing manager David Przednowek said the board didn’t miss out on the rally.
He said a number of factors have combined to create a situation in which the higher prices are showing up in the new crop pool rather than the old crop pool.
High prices later in the crop year, when the pool is close to being fully sold, have less impact on the PRO.
As the PRO spreads between the two crop years widened in the spring, with the prospect of stronger fundamentals for the 2006-07 world wheat market, a lot of farmers decided to hold their deliveries of old crop wheat into the 2006-07 crop year.
“The PRO spreads, combined with a lot of optimism about the 2006-07 PRO, given the strength of the futures market over the past couple of months, has meant farmers have carried more forward into the ’06-07 crop year,” Przednowek said.
As a result, the projected size of the 2005-06 pool shrank and lower-priced grain from earlier in the crop year accounted for a bigger proportion of the total pool than would otherwise have been the case, thus putting a lid on the 2005-06 PRO.
The wheat growers association also took the board to task over the prices available through the fixed price contracts, saying spring wheat contracts were 70 cents per bushel below U.S. elevator prices in the northern states.
However the board took issue with that, saying FPC prices compare favourably with U.S. elevator prices.
For example, the board said that on July 21, the FPC price for No. 1 CWRS 13.5 at Emerson, Man., worked out to $4.93 a bushel. Meanwhile across the border at Devil’s Lake, North Dakota, the price for the comparable grade of spring wheat was $4.75 Cdn.
The board acknowledged that the price comparison on winter wheat is not as favourable, due to the fact that millers on both sides of the border generally prefer U.S. to Canadian winter wheat.
“We have to discount in order to get into the U.S. market for winter wheat,” said Lawrence Klusa, commodity risk manager for the wheat board.
He said winter wheat growers may do better using the daily price contract or producer direct sales program because small lots can be blended up more easily than a trainload of CW red winter.
