Recent setbacks in wheat futures have more to do with political uncertainty than fundamentals, said the Canadian Wheat Board in its February Pool Return Outlook.
The board also said that while malting barley markets are now sluggish, year-end stocks will be down and there is potential for sharply higher new crop prices if there are production problems again this coming growing season.
Spring wheat prices on the Minneapolis Grain Exchange fell about 12 percent Feb. 14-24.
“The market pullback is partly in response to the Libyan situation, which in reality does not materially change the grain fundamentals facing the market as we move through the second half of the crop year,” the board said in comments accompanying the PRO.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
As temperatures rise in March on the southern U.S. plains, attention will turn to the precarious state of the winter wheat crop, the board said.
Early estimates had called for more than one billion bushels of hard red winter wheat, but the board said that has been reduced by 20 percent to slightly more than 800 million bu.
That will support prices, but the United States will still have a sizable wheat carry-in to the new crop year, mitigating the bullish effect of the winter wheat problems.
However, the market remains well supported by corn, which is characterized by tight stocks and burgeoning demand, the board said.
Durum prices are affected by unrest in North Africa, a key source of international demand, but world stocks will be down at the end of this crop year.
Spring wheat and durum production in the northern U.S. might be squeezed by increased corn acres.
Malting barley trade has been slow. China has covered some of its malting needs by buying quality feed barley from Australia. Most buyers will likely try to hold out until the next Northern Hemisphere harvest, when they hope prices will come down.
“The 2011-12 harvest is expected to be met with a lot of pent up demand for malting quality barley, so if there are any production or quality issues that develop with new crop production, prices could spike significantly,” the board said.
