Analysts find no reason why the wheat market might alter its downward course.
“There’s just so much wheat and we’re trying to get this economy back on its feet,” said Joe Victor of Illinois-based Allendale Inc.
“Two trains have come together,” he said.
“We have two years of back-to-back big supplies that have run into a down-bound train of the world economy, and that has caused a derail.”
Western Canadian farmers appear to be in a slightly better position with hard red spring wheat because September’s weather boosted the protein content of the crop, while in the United States protein levels are reported to be poor.
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However, durum growers are suffering a drop in prices as bigger-than-expected production is more than expected demand.
The recent Canadian Wheat Board Pool Return Outlook dropped No. 1 Canadian Western Amber Durum with 14.5 percent protein from $7.08 per bushel to $6.40, and the board cancelled its Fixed Price Contract for durum Sept. 24.
The board is also facing marketing challenges with higher protein wheat. It may be worth more money, but the board didn’t expect to receive so much of it.
The trend-setting Minneapolis, Kansas City and Chicago wheat futures prices all show the same downward trend.
Victor said recent reports from the U.S. Department of Agriculture and Statistics Canada have done nothing to alleviate the market’s belief that large wheat, corn, soybean and canola crops are coming. Victor said only a surprise finding of smaller crops than expected would relieve the downward pressure.
The generally excellent growing conditions in September across North America have substantially boosted the size of crops in the main growing regions, and analysts are speculating that the recent Statistics Canada and USDA production estimates are likely too low.
“Because we had such an exceptional September, I think this crop had a very good chance to mature and develop (after the StatsCan survey was completed on Sept. 9),” Tony Tryhuk of RBC Dominion Securities in Winnipeg told Reuters.
Ken Ball of Union Securities agreed.
“Everyone still expects these numbers to get bigger with the next report,” Ball told Reuters.
The wheat market is the weakest of the major crops, a phenomenon Victor attributes to its wide production base.
Soybean and canola prices, which had recently been steady after a substantial fall from the March to June rally, still have weather fear built into them because U.S. soybean oil may have been reduced by last week’s frosts. As well, the U.S. is the only substantial source of soy oil until March when South American production will become available.
However, the U.S. and Canada aren’t the only game in town for wheat.
“Everybody and their brother is producing it,” Victor said.
“That takes a lot of fear out of buyer’s minds. If I’m a buyer in Japan or Taiwan or South Korea, and I can find wheat at a relatively short haul or by cheap freight, I can access it from the Black Sea, from Australia, anywhere.”
Protein premium
High protein wheat should win back big premiums over standard wheat this year, Victor said, because American crops are in bad shape.
A northern tier U.S. miller is offering for 15 percent protein a premium of $2 per bushel over 13 percent protein.
Regardless of what the final crop production reports from USDA and StatsCan say later this year, demand must pick up if the market is to strengthen.
“The big thing that these crops are going to have to do is find demand,” Victor said.
“We have not done that.”
