Wheat and durum are sharply lower in the July Pool Return Outlook for 2011-12 reflecting an improving outlook for supply and the stronger Canadian dollar.
The market has already accounted for the production problems arising from the wet spring in Canada and the United States and dryness in Western Europe. Traders are now focusing on the impending harvest and on a much improved wheat crop in the former Soviet Union.
The International Grains Council on July 28 raised its forecast of 2011-12 global wheat production to 674 million tonnes, up from a previous forecast of 666 million and well above last year’s 651 million when the worst drought in decades devastated crops in Russia.
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Estimates of the size of the new crops in Russia, Ukraine and Kazakhstan are increasing and harvest of winter wheat has begun there, freeing up supplies of old crop wheat to be exported
“As a result, sales of Russian wheat are putting pressure on international wheat prices,” said the commentary accompanying the PRO.
“Exporters have been aggressively selling feed and low-quality milling wheat, buying back market share among familiar Russian customers in the Middle East and Africa.”
Protein premiums have fallen as the U.S. winter wheat crop, although drought-reduced, proved to have high protein, CWB said.
PRO values were also lowered by the strong Canadian dollar, which is rising against the U.S. dollar due to the uncertainty about the American economy and its deficit fight.
At the time of this PRO, the CWB had priced about 10 percent of the expected 2011-12 crop year deliveries of wheat.
Durum development is still behind average, but the quality risk as perceived by the market is reduced from last month due to warmer, drier weather in Canada and the U.S.
“The outlook for durum yields is mixed, with improving expectations outside the flood zone being counterbalanced by poor crops in the flooded area,” the CWB said.
The European harvest is mostly complete with problems in Spain and Greece offset by good crops in Italy and France. North Africa has also harvested its durum and with good local supplies its short term demand is limited.
The potential supply of malting-quality barley is decreased due to lower European production estimates and reduced planted area in North America.
This has kept prices volatile over the last month. The sharply higher premiums posted at the height of the drought worry in Europe have now dropped.
Price direction will depend a lot on harvest weather in North America and how it affects malting quality.
The CWB expects malting barley prices to be firm into January when harvest in Australia and Argentina is expected to weaken values.
