It might be time to use the pricing options offered by the Canadian Wheat Board to lock in a value for some of your wheat.
Worries about damage to wheat crops in the former Soviet Union and Europe have pushed up futures prices.
But many analysts, including the CWB itself, note that the large carry in of global wheat stocks from the 2009- 10 crop, and the large U.S. wheat crop, could pressure wheat prices down again. The U.S. spring wheat crop rating is the best in 10 years.
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I wrote about wheat supply and demand fundamentals in my column last week.
Speculative money has poured into the wheat market, driving up the price, but the CWB warns in its commentary on the latest Pool Return Outlook that if the perception turns negative, the speculative money could pour out.
The CWB also draws attention to another factor that we have covered recently. That is the potential for U.S. corn to drive the market higher.
The board notes that when increases in use due to ethanol are factored in, the current U.S. corn ending stocks forecast is tighter than the 2006-07 U.S. corn supply and demand balance, which was a major catalyst for the 2007-08 grain complex rally.
The CWB noted “all indications suggest that only exceptional yield results or rationed demand will keep supply concerns from motivating a significant rally.”
The Midwest is enduring a heat wave as corn there pollinates. However, it is not a dry heat. Soil moisture in most of the area is good and there are a lot of thunderstorms, leaving the market with the belief that yield potential is not being seriously downgraded.
New corn hybrids seem amazingly resilient and yields have been surprisingly strong in the past two years.
At this time of year, the situation is uncertain, but it might be worthwhile to get out a pencil and do some figuring using the CWB wheat pricing options to see if pricing now is right for your operation.
Another factor just now appearing in the wheat market is wet weather in Argentina. The Buenos Aires grain exchange said last week the wheat planting season has been disrupted by “constant rains, almost without interruptions since the first days of July.” Sound familiar?
The country’s agriculture ministry last week shaved its acreage forecast to 10.5 million acres from 10.87 million because of a seed shortage after last year’s disastrous crop. The grain exchange said seeded area could fall further if the rain keeps up.
Turning to durum, the CWB notes production will be down in Canada but up elsewhere. The net result is a decline globally of 3.2 million tonnes from last year’s crop. Supply will still be ample though.
However, the euro has appreciated since the last PRO, making European durum less attractive on the world market. Also, end users in the Mediterranean region have started buying, which has driven up durum prices recently.
The U.S. could be a strong competitor but elevator bids in the country are well below world values, the CWB said. American farmers aren’t selling and little U.S. durum has been exported in the last month.
The CWB believes the domestic market for feed barley will again be more attractive than international prices.
As for designated barley, weather problems in Canada will likely reduce the malting quality crop here and acreage is down in the U.S. The heat wave in Europe and the former Soviet Union will reduce malting barley crops there.
End users do not want to be caught short and have been buying, but the impact will be capped by large European stocks carried into the new crop year. The stronger euro has also pushed up the European price in Canadian dollar terms.
Future malting barley market direction will depend on how the quality turns out in Canada and the United States and the Australian and Argentine harvests in the second half of the year.
