Wheat price dip temporary?
There was little change in the Canadian Wheat Board’s Pool Return Outlook released last week, indicating a lack of strong price direction in world grain markets.
The heat and lack of rain in many parts of North America and Australia that drove up prices in August have been replaced by good harvest weather in the United States and Canada, good seeding weather in U.S. winter wheat areas and rain in Australia.
Harvest is the key factor in the market now. The Minneapolis December futures contract closed Sept. 26 just shy of $3.91 (U.S.) per bushel, down almost 25 cents since the end of August.
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By comparison, the mid point of the CWB’s PRO for No. 1 Canada Western Red Spring is now $5.38 per bushel or about $4 per bushel, before handling and transportation charges.
Should we prepare for bad price news for the rest of the crop year?
On the bright side
Peter Watts, the board’s market analyst for Western Europe, said in a recent outlook that there are also positive price indicators in the market.
Four of the world’s five major wheat exporters – Canada, Australia, Argentina and the European Union – have lower production this year. The latter three are expected to export less.
On the other hand, the U.S. has a big crop and exports are slower than last year. American grain traders were disheartened by news last week that Australia picked up more of a tender from Pakistan than expected.
But Watts says the El Nino factor is still considered a threat to Australian wheat and barley crops as well as other crops around the world and the Europeans are having serious quality problems that will limit the quantity of decent milling wheat on the world market.
There might be a record sized world wheat crop at about 596 million tonnes, but the major increases over last year are in China and the countries of the former Soviet Union, and they will probably be consumed domestically. Supplies among major exporters are down and quality milling wheat could be in short supply.
This means the recent drop in prices may be temporary and although prices could be choppy over the next two months, they shouldn’t stray too far from current levels, given what we know now.
Prices should begin to rise in early 1998, as supplies begin to tighten after the southern hemisphere harvest is complete, Watts said.
