When Glenn Lennox the farmer asked Glenn Lennox the market analyst a few months ago what to plant this year, the answer was anything but spring wheat.
It was obvious. The expected net returns for other crops far outshone the outlook for wheat.
So like thousands of other prairie producers who reached the same conclusion, Lennox abandoned wheat and instead planted oats, canola and barley, along with a bit of high yielding feed wheat destined for a local ethanol plant.
Since making that decision in the spring, the Agriculture Canada market analyst-farmer has watched as one unexpected development after another has sent wheat prices on an upward track.
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“I should know as much about this as anybody and I didn’t plant any wheat at all,” he said with a rueful laugh.
Figures released by Statistics Canada last week made it clear that Lennox had plenty of company.
Farmers in Western Canada seeded only 14.88 million acres to spring wheat, a 19.1 percent decline from the 2006 seeded area of 18.38 million acres and the lowest total since 1970.
While it was no surprise that wheat acreage was down, the decline was greater than most analysts expected.
It was even enough to capture the attention of U.S. wheat traders, who usually ignore happenings north of the border.
Spring wheat futures on the Minneapolis Grain Exchange went up the limit June 26, to a record $6.28 US per bushel.
“It’s one of the few times I can remember a StatsCan report having a significant impact on the American market,” said Lennox.
A number of factors have combined to turn things around in the wheat market in recent weeks, to the point where world prices have reached 30-year highs.
- The U.S. hard red winter wheat crop has suffered through one of its wettest harvest in decades, reducing expectations for both volume and quality.
- Drought in Russia and Ukraine has hurt crop prospects.
- The government of Ukraine has imposed export restrictions for the first three months of the new marketing year.
- Canada’s spring wheat plantings declined 19.1 percent.
- U.S. spring wheat area of 13.1 million acres is five percent below preseeding estimates and 1.8 million acres (12 percent) below 2006.
Market analyst Mike Jubinville of ProFarmer Canada said the current price spike in wheat would have been impossible to predict a few months ago.
“No one could see this coming unless you could foresee the U.S. harvest problems,” he said.
Lennox said farmers made the right decision given what they knew at the time.
“They were looking at prices and net returns and they said plant anything but wheat,” he said noting that the Canadian Wheat Board’s pool return outlook for 2007-08 was below 2006-07 at that time.
Even with the recent upturn, net returns for wheat still probably won’t match alternatives like oats, barley or canola, given the higher fertilizer costs for wheat.
Lennox added that the benefits of the world wheat market are being limited for prairie farmers by the strong Canadian dollar.
Another factor in the reduced acreage is wet seeding conditions in central and northern areas, which prompted many producers to switch to shorter season crops.
Meanwhile, results from the 2006 census have prompted significant revisions to 2006 crop acreage numbers. Total western Canadian wheat area for 2006 is now pegged at 22.84 million aces, down from the previous figure of 24.97 million.
