Durum fell the most in the December 2011 Pool Return Outlook from the Canadian Wheat Board released Thursday.
Wheat values are little changed ranging from $1 per tonne higher to $5 per tonne lower compared to November, depending on class, grade and protein level.
The largest drops were on lower grade and lower protein types.
Durum values fell between $1 and $22 per tonne although were mostly down about $20.
Malting barley values fell $4 per tonne since last month.
Pool A feed barley dropped $3 per tonne, while Pool B feed barley is up $1 per tonne.
The following is the CWB commentary accompanying the PRO:
PRO Commentary 2011-12 PRO
Tumultuous global economic conditions continue to have a strong influence on agricultural commodities.
The European Union is actively trying to resolve problem debt issues. There is a commitment to resolve the debt crisis, but both the course of action and outcome are not yet determined.
The longer it takes the EU to reach stability, the longer the broader global economy will struggle.
The end result is that uncertainty and volatility will remain elevated.
The euro and Canadian dollar — among many other foreign currencies — have lost ground to the U.S. dollar.
Currency fluctuations have implications for both competiveness and farm gate returns.
As the U.S. dollar increases, agricultural commodity prices tend to decline in U.S. dollar terms.
At this juncture, it is difficult to predict the direction or magnitude of exchange-rate fluctuations.
Wheat
“Big crops get bigger” is a market mantra and, in general, larger supply tends to have a negative impact on world prices.
The U.S. Department of Agriculture in the December World Agricultural Supply And Demand Estimates (WASDE) report estimated 2011-12 world wheat production at 689 million tonnes — the largest production estimate of all time, representing the biggest world production on record.
Consumption is estimated at 680 million tonnes, which is also a record.
Ending stocks are estimated at 208.5 million tonnes — a 30.6 per cent stocks-to-use ratio.
Going forward, the abundant production and stocks are not supportive of the current futures levels without some outside assistance from the broader agricultural complex or from the economy.
Competition for export share remains elevated.
Russia, Ukraine, and Kazakhstan (Black Sea) are aggressive exporters and will continue to be an active presence for export business.
This month, Australia and Argentina will start to actively export new-crop wheat.
Australian production is estimated at 28.3 million tonnes–an all-time record production level.
There have been some adverse rains during the harvest period and a proportion of the Australian crop has been downgraded.
As a result, Australia will have a limited export program for higher-quality and higher-protein wheat, with some additional feed wheat on offer to the Asia-Pacific market.
This provides some support to quality and protein spreads, but puts intense pressure on the mid- and lower-grade wheat markets going forward.
Overall exports from the Southern Hemisphere will keep the pressure on the wheat market for the next three months.
The latest WASDE reduced the 2011-12 U.S. wheat export forecast from 975 million bushels to 925 million bushels.
Thus far in this marketing year, U.S. export commitments are down 24 per cent year on year.
The U.S. has struggled to maintain competiveness in the world wheat market and expectations are that American exporters will continue to face an uphill battle to increase market share given abundant supplies from multiple origins.
Typically slow U.S. exports indicate that prices do not favour the U.S. and that, to gain market share, North American prices must decline.
The EU, in contrast to the U.S., has maintained a competitive stance and has made sizable exports into the Middle East and North Africa.
Corn remains in a historically high-priced channel, but there are definite signs that corn prices could face additional pressure as the world moves towards the 2012-13 marketing year.
The December WASDE made very small changes to the U.S. corn supply-and-demand balance sheet.
However, on the world side, production and stocks were increased.
World corn ending stocks are now forecast relatively flat year on year, despite perceptions that the U.S. corn crop was an abject “failure”.
South American 2011-12 corn will start a rolling harvest towards the end of this month.
Those additional supplies will increase the likelihood that the U.S. export forecast of 1.6 billion bushels will not move upwards.
Finally, historically strong futures prices are encouraging corn planting both in the U.S. and the world in general.
The U.S. is forecast to produce approximately 13.8 billion bushels in 2012-13 and, as a result, faces the prospect of almost doubling ending stocks with all the negative implications to the price structure that infers.
The PRO is the forecast of the final pool return. It includes the estimated value on grain that has already been priced, and the forecasted value on grain that has yet to be priced.
The CWB prices wheat on a pace that is approved annually by the board of directors.
The futures and options markets are used to moderate faster or slower cash sales to ensure pricing follows this pace.
At the time of this PRO, the CWB has priced approximately 46 per cent of the expected 2011-12 crop year deliveries of wheat.
It is expected that the wheat pricing level will reach approximately 50 per cent by the end of December.
Durum
Like last month, world durum prices have been negatively impacted by buyer resistance to the high-priced regime.
The world durum trade for 2011-12, excluding semolina, is estimated at 6.7 million tonnes, down 630 thousand tonnes from 2010-11.
Total global trade commitments at the start of December stood at 3.6 million tonnes, compared to last year’s 4.2 million tonnes.
Last year at this juncture, the U.S. had sold 731 thousand tonnes, while this year its total commitments stand at only 243 thousand tonnes.
This is obviously related to the fact that weather in the Northern Plains severely reduced U.S. production and buyers have resolved to ration their demand in the 2011-12 marketing year.
Price prospects going forward are weighed down, in part, by the ability of demand to hold out until early season 2012-13 production comes on line (U.S. desert, Mexican, and North Africa production) in the second quarter of calendar year 2012.
The Canadian dollar and the euro remain under pressure, with both slumping against the U.S. dollar over the last month.
A weaker euro drops the U.S.-dollar-based export price, supports EU exports and reduces its import demand.
A weaker Canadian dollar has the potential to offset some of the decline in the U.S.-dollar-denominated price in terms of farmgate return.
Feed barley
The international feed-barley market continues to decline as new barley supplies become available.
Motivated Australian exporters will take advantage of both abundant supplies and favourable ocean freight rates, allowing them to lock in nearby markets and compete into the Middle East.
Weaker values in the export market will make further international feed barley sales unlikely, as both strong domestic feed values and a small overall crop in Western Canada provide domestic marketing opportunities for farmers.
Designated barley
Harvest is ongoing in Australia, with completion reaching 80 per cent across the country.
Untimely rains have hampered progress in New South Wales, where precipitation throughout December has caused delays and quality problems for the second year in a row.
Western and Southern Australia have fared better, advancing significantly in the last 10 days.
With only 25 per cent of the crop remaining at risk, the overall quality breakdown of the 2011 Australian barley crop will be decent, but higher yields have resulted in very low protein levels across the country, which can be a detriment in some markets.
Further new supplies of malting barley will soon be coming to market, as cereal harvesting has now begun in Argentina.
In anticipation of these new supplies, prices have continued to decline, with Australian and Argentine sellers aggressively joining the competition for business into key markets like China.
The quality profile of Western Canada’s malting barley crop is good this year due to a warm, dry September, which allowed much of the production to make its way to the bin in good condition.
The high quality of Canadian malting barley and lower-than-average protein may give a competitive advantage into premium markets and provide further opportunity where maltsters require blending.
The U.S. has reduced supplies of malting barley this year, due to smaller production and a poor quality six-row crop.
Additional U.S. demand is expected into the spring, as maltsters make use of domestic supplies first.
Prices will remain under pressure as Australia and Argentina ramp up their export programs and the world moves towards a larger world barley crop in 2012-13.
Lower quality malting barley values in Australia are currently being offered at levels that are only slightly above feed barley.
