A weaker wheat Pool Return Outlook reflects lower wheat futures, a rising Canadian dollar and Russian competition, but the market is in flux and further rallies can’t be ruled out.
In its recent PRO, the Canadian Wheat Board dropped expected wheat prices by $2 to $5 a tonne compared to its September estimate.
On Oct. 29, however, wheat futures prices soared, closing at $8.285 US per bushel on the Chicago Board of Trade December contract, suggesting it is too soon to conclude that wheat has broken its back and will inevitably collapse.
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Many still feel that wheat prices could rise well above their Oct. 1 peak, focusing on tight world stocks levels and good demand around the globe.
But aggressive competitors and questions about the true strength of demand have undercut the bulls’ short-term confidence, while leaving intact the case for longer-term high prices.
“Russian exporters are pressuring the wheat market by maximizing exports as much as possible before the implementation of a new 10 percent export tax on Nov. 12,” said the wheat board in its PRO analysis.
“The U.S. continues to report large export sales and has sold 89 percent of its 2007-08 export program, versus 49 percent at this time last year.”
In its Oct. 25 report, the International Grains Council said global wheat prices unwound over the last month, but brisk U.S. wheat export sales slowed the price decline. Speculation, since discounted, about Russia imposing high wheat export tariffs generated a temporary rally.
The grains council sees a potent potential threat to high wheat prices: high wheat prices.
“Very high prices are having some effect on consumption,” it reported.
The council cut its projection of 2007-08 wheat consumption by two million tonnes, to 610 million from 612 in September. That’s still eight million tonnes more than world wheat production.
While booming U.S. export wheat sales have slowed the price slide from the Oct. 1 peak, Wells Fargo analyst Michael Swanson recently warned in a report not to take news about international sales too seriously.
“One thing that I learned from working the trade import desk for Cargill in Colombia was that orders can be cancelled,” wrote Swanson in his October crop markets report.
“If your largest customer in a market decides prices are tumbling, don’t be surprised if they find ‘problems’ with the current orders … . At the moment, many orders are being placed ‘just in case.’ You can’t really separate the wheat from the chaff in these markets, but you need to keep your perspective on how much demand is really out there.”
Demand concerns have dominated wheat markets recently because northern hemisphere production is completed and southern hemisphere crops are coming closer to harvest. But already analysts are pondering the likely size of the 2008-09 crop, watching closely winter wheat seeding in the northern hemisphere.
The grains council is predicting that world wheat acreage will grow by three percent next year, making two years in a row that wheat acreage has increased.
It predicts that Canadian wheat acreage could swell by 10 percent, while the U.S. wheat acreage increase could be six percent.
Whatever increase in production those extra acres cause will be marketed in a world of extremely tight wheat stocks.
The council expects the world’s five major exporters of wheat to have their lowest level of wheat stocks in 34 years.
