CWB PROs reflect expectation of big world grain crops

CWB has updated its Pool Return Outlooks for the 2013-14 early delivery and annual pools, and has lower projected returns for all grains and oilseeds.

In its PRO commentary, CWB listed larger global wheat and corn stocks and a stronger Canadian dollar as factors affecting PROs.

The new PROs were released Aug. 15, just before a market rally that saw futures values rise sharply for most crops.

On Aug. 26, new crop U.S. soybean futures hit an 11-month high and corn hit its highest level in a month on concerns of a lingering heat wave that is likely to affect soy, corn and wheat yields in the U.S. Midwest.

CWB official David Przednowek said there is a reasonable chance that CWB will update its PROs again in the next week or so, particularly if crop conditions worsen south of the border.

Either way, the latest PROs reflect market values that have fallen significantly from the stratospheric levels seen a year ago.

“(Last year), Minneapolis wheat touched the peak of around $10,” Przednowek said.

“At the time we did this PRO, (our numbers) were reflecting futures values in the area of about $7.45 to $7.70 a bushel.”

“The big changes, year on year, are a corn crop that’s going to end up being a lot bigger than it was last year,” he said.

“There are some concerns that it’s not going to be as big as was initially projected, but either way, it’s going to be a record crop and that’s having a big impact on wheat and coarse grains.”

Market analysts are gradually piecing together a more accurate picture of global grain stocks.

Spring wheat yields in the Northern Hemisphere have been mostly determined.

Volatility in wheat markets is largely the result of lingering frost fears in Canada and production-related concerns over late-season crops such as corn and soybeans.

In Western Canada, market analysts are predicting a large, high-quality crop with some experts predicting more than 30 million tonnes of wheat and nearly 15 million tonnes of canola.

Harvest operations have also gone well in Europe and the Black Sea region.

Przednowek said international supplies of wheat harvested this year will outstrip demand.

“Globally, in spite of some unexpected and friendly demand from places like China and Brazil, the world’s going to end up with a pretty good wheat crop for this year so we’re going to build ending stocks,” he said.

Pool return outlooks are not guaranteed prices. They are estimated returns for grain in-store, Vancouver or St Lawrence.

For example, the August 2012 PRO for No. 1 CWRS, 13.5 percent protein, committed to the CWB’s early delivery pool was listed at $361 per tonne.

Actual farmer returns were closer to $336 per tonne, which included an initial payment of $261, an adjustment payment of $50 in January and a final payment of $25.23 issued May 17.

Charlie Pearson, a crops and market analyst with Alberta Agriculture, said the models used by CWB to arrive at PROs are an accurate reflection of current market conditions.

“It’s a good process and at the end of the day, it comes up with a relatively good forecast of what they think they can do.”

Pearson said CWB has altered its pool program to reduce risk and send more accurate price signals to participating growers.

This year, all CWB pool programs will include a futures choice option, which has generated much interest among farmers.

Pool payments are also being issued more quickly.

For example, last year’s early delivery pool was closed and final payments issued by mid-May, a marked improvement over previous pooling programs offered by CWB.

“I think you’ll see more of that in the future because in some sense, the new CWB has to be more innovative than they were in the past,” Pearson said.

“Before, you normally had pools open for 18 to maybe 20 months … but if you have pools now that are finalized in six to nine months, it makes it a lot easier for the new CWB to manage that risk … and to provide the best signals … to individuals who are participating in those pools.”

Regarding farmer participation in CWB pools, Pearson said many farmers already have sales programs that are designed to generate average returns throughout the marketing year.

For example, some farmers use a form of pooling or price averaging that is predicated on selling 25 percent of their crop in the spring, 25 percent in the summer, 25 percent in the fall and 25 percent in the winter.

“A lot of guys, rather than using a pool process, have their own way of averaging sales throughout the year … and getting a pool price that relevant to them.”

It is still not clear how much grain the CWB attracted in its pooling programs last year, but company officials have said that farmers are generally less inclined to participate in pooling programs when cash markets are strong.

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