The Canadian Wheat Board took no chances with its 2004-05 Pool Return Outlook, say some market analysts.
“The PROs are very much on the conservative side,” said John Duvenaud, a farm marketing adviser with the Wild Oats market newsletter.
“The board has left itself room to improve them through the year, which I expect they will do.”Wheat PRO values for 2004-05 are $3-$14 per tonne less than in the latest 2003-04 PRO.
The board’s view is based on an assumption of higher production by major exporters in 2004-05 compared to the small 2003-04 crop, as well as a continuing strong Canadian dollar.
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The International Grains Council is projecting a world wheat crop of 601 million tonnes, which would be 44 million tonnes bigger than the 2003-04 crop. Wheat production prospects look better in most of the major exporters, the IGC said.
But some analysts take a more optimistic view, based on an expectation of strong demand and fewer acres than expected.
North Dakota market analyst Mike Krueger thinks both the United States and world market outlooks should be bullish, not bearish.
“Even if the world has a big recovery in world wheat production, world wheat supplies are still going to decline,” said Krueger, who operates The Money Farm, a producer advisory service in Harwood, N.D.
Expectations of strong corn prices should also support wheat values.
“The world and U.S. corn market is going to be firm all through next year because of the tight supplies.”
Krueger said present wheat prices will likely continue into 2004-05 and may strengthen.
Duvenaud thinks prairie wheat acreage will suffer this spring because of the lower PRO wheat prices.
Krueger said he expects U.S. spring wheat acreage to slump by up to 15 percent. That’s not because of a bad price outlook, but because of a crop insurance program that is inadvertently promoting most other crops over wheat.
“Producers can take crop insurance for the 2004 crop and give themselves way more per acre for corn, (soy)beans and oilseeds than they can for wheat and barley,” said Krueger.
The insured prices for the 2004 crop were set in February, when corn and soybean market prices had a bigger spread to wheat than they do today.
Even American farmers who want to seed wheat this spring may find themselves pushed to plant corn or soybeans.
“Your banker will say, ‘if you can guarantee $200 an acre on beans, or $250 on corn, or $100 on wheat, the decision is right there,’ ” said Krueger.
The only reason to think U.S. wheat acres will hold or increase is the possibility of a significant weather problem, such as drought, Krueger said. Wheat is more drought resistant than other crops.
Otherwise, with crop insurance making it look like a bad choice, spring wheat acres will likely fall.
“Beans, corn, canola and sunflowers will make up the difference,” Krueger predicted.
