With wheat prices whipsawing, how does the Canadian Wheat Board estimate future prices?
Very gingerly, it seems.
“It’s definitely interesting,” said CWB market analyst Jason Newton.
“You kind of have to look through all the extremes and go back to fundamentals and what’s actually trading and what’s going to be happening a few months from now rather than (focus) on what’s happening in this weather market with huge volatility.”
Oklahoma State University analyst Kim Anderson said guessing nearby winter wheat futures prices is a mug’s game, and even trying to set the extremes of the trading range is becoming tough.
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Between March 28 and April 12, the July Kansas City Board of Trade wheat price surged from $4.01 per bushel to $4.71. Then it fell back to $4.26, but climbed back to $4.38 by May 1.
“Given this type of volatility, it is difficult to determine price support and resistance points and target prices,” said Anderson.
Wheat board market analysts need to estimate prices far in the future for the 2006-07 crop, and that job isn’t made easy by volatility. But by ignoring short-term noise, they hope to get a reasonable idea about what likely price farmers will receive for the coming crop.
The latest Pool Return Outlook saw little change from the month before.
“The market goes up and down from day to day,” said Newton.
“Traders are very emotional and react to little things in big ways.”
Those little things include weather forecasts for more than a week away, and “we know how accurate those are,” said Newton.
The board relies on long-term pricing patterns. For instance, when U.S. prices shoot up in the short term, U.S. exports tend to go down as demand is rationed. Eventually U.S. prices tend to rejoin world prices.
