Seeding is significantly delayed across much of Western Canada and the Dakotas, but farmers have seen little reaction in the markets.
Analysts blame the ho-hum behaviour in the hard red spring wheat and canola markets on a number of factors.
“There’s still time (for prairie and great plains crops to be seeded,)” said analyst Greg Kostal.
“Canada’s just a pawn in the global wheat chess game. We could get a four to five million tonne production variance and it just gets diluted with everything else going on around the world.”
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A significant share of the world’s tradable supplies of spring wheat and canola come from the Canadian Prairies and the Dakotas, but traders have come to realize that western farmers can seed well into June and still produce crops. As well, food processors have learned to work with a wide range of ingredients.
“They’ve learned from their mistakes,” Kostal said about food processors who got burned from rising crop prices in 2008.
“They stretch out their purchases longer, they use other things, reformulate, all kinds of things.”
Food processors now use sophisticated formulation strategies to swap ingredients in and out as they become cheap or expensive.
And for all its vaunted attributes, canola in the end is just a vegetable oil.
“All canola would need to do is run up $20 to $40 per tonne independently of other oilseed choices and you’d hammer demand,” Kostal said.
Rich Nelson of analytical firm Allendale, Inc., said buyers of hard red spring wheat can substitute other classes of wheat and buy from exporters where growing conditions are better.
“What’s muting the bullishness is the fact that wheat production outside of the U.S. and Canada will certainly be increased this year,” said Nelson.
“Net world production is increasing, conservatively, two to three percent. Realistically it could be three to four percent.”
Kostal said that the overall wheat complex price is unlikely to rise much, even with significant problems in North America, but spreads between low quality and high quality/ high protein wheat will likely widen, giving farmers better news if conditions worsen.
“It gets resolved by spreads,” said Kostal.
“Wider quality premiums versus other wheat classes (are more probable) than an independent reason for wheat prices to giddy up and go.”
Continuing slow progress in North America may eventually spook traders, Nelson said.
“The trade may want to take more notice towards the end of the month, before they start hitting the panic button.”
