Canadian farmers may find it difficult to get top-end prices for the cereals this coming year.
Analysts at the Grainworld conference in Winnipeg gave farmers a generally dim outlook on cereal grains, with heavy supplies making price gains difficult.
Increasing production in major wheat exporters will create a competitive market for sales, and improved weather in North Africa reduces the chances that durum demand there will be as robust as during last year’s drought, analysts said during a panel discussion.
If Canada produces 24 million tonnes of wheat in 2013, it will probably need to export 15 million tonnes, said Lawrence Yakielashek of Toepfer, an international grains marketer.
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That’s going to be a challenge if production recovers and increases in India, Russia, Ukraine and Kazakhstan, he said. Only 6-7 million tonnes can be sold into the top-paying markets like Japan, the U.S., Europe, Indonesia and China.
“That means we’ve got to export roughly another eight million tonnes to markets where we’ve got competition with other people in the world,” said Yakielashek.
Since those markets won’t pay extra for high quality wheat, farmers could be better off growing higher-yielding, lower quality wheat types, he said, repeating an argument he made at the 2012 Grainworld. If the world won’t pay for the best hard red spring wheat, why not grow more profitable types of wheat?
Yakielashek admitted that the tight spread between low and high quality wheats is partly due to the drought that hit U.S. hard red winter wheat, but he said he believes that even in most normal years, there is often only a one-dollar-per-bushel premium for high protein wheat, and farmers can often net more from higher yielding, lower quality wheats.
With Russia’s wheat production likely to grow by 15 million tonnes this year, Ukraine’s to increase by five million tonnes and Kazakhstan’s to jump by six million tonnes, Canada will find aggressive competitors from Europe to Asia.
It will also have to get used to Indian grain sales, because the country hopes to export one million tonnes of wheat per month.
John Griffith of American grain company CHS gave a cautiously optimistic outlook for durum, but warned farmers against too much hope for a major independent rally.
Rainfall in North Africa is slightly below normal in many areas, but not nearly as badly as last year, which helped sales surge this year.
However, if farmers in Western Canada back off growing the crop, the supply and demand situation could become more bullish.
Durum supplies are adequate but not onerous “and are just enough to serve the market’s needs,” said Griffith.
Earlier in the day FarmLink Marketing released its estimates for spring planting, calling for an 8.1 percent reduction in durum seeded acreage this spring.
“The market needs production from Canada,” he said.
Durum has been disappointing farmers with little or no premium compared to spring wheat and Griffith acknowledged that this wouldn’t encourage farmers to grow the crop this spring.
Durum could regain its typical premium, he said, but it would probably happen if other crops like corn and soybeans fell in price, rather than by an independent price rise by durum.
