Wheat prices can still go up, but there are more constraints on the
market than in 1995-96, says Canadian Wheat Board analyst Peter Watts.
The entrance of non-traditional exporters such as the former Soviet
Union throws a curve into the world market.
“They’re exporting furiously on the global market to take advantage of
these high prices,” said Watts about Ukraine, Russia, Kazakhstan, India
and Pakistan.
Those countries were often importers of wheat in the past, but have
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recently developed the ability to grow excess crops and get them to
market.
But how much they can get to market is unclear.
“It’s really difficult to have a good handle on the logistical
capability of, say, the Ukraine,” he said. “Their infrastructure is
developing continuously and they’re going to have year over year
increases in their capabilities.”
The United States Department of Agriculture recently bumped its
forecast of Russian grain production by seven million tonnes to 48
million. The Ukrainian crop, which is about half that size, should
increase by 3.5 million tonnes, the USDA said.
Watts said these exporters will keep a lid on world wheat prices,
though they don’t completely trade on the world market yet.
Wheat from those countries is now sold at a heavy discount to North
American prices, Watts said. In the long term, that should disappear.
“It’ll be interesting to see how many years it takes for those guys to
arbitrage with North America,” said Watts.
“They tend to trade on their own fundamentals, their own situation.
They know what’s going on in North America, but they don’t necessarily
follow the prices. They’re trading their grain at a huge discount to
North American values.”
