The direction of the Canadian Wheat Board’s pool return outlook for the new crop year seems generally in line with what the September Minneapolis futures market has forecast.
Of course the Minneapolis prices jump around a lot, but here is the September contract price of the day of the PRO release, converted to Canadian dollars per tonne, with the PRO for No. 1 CWRS 13.5 protein in brackets, for the last three months: May $192.84 ($207), June $189.68 ($207) and July $199.24 ($216).
Remember, the PRO is a port price and Minneapolis is an interior price. Also remember that the PRO is a forecast for the entire year, while the Minneapolis price is a forecast for September.
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So the comparison is far from exact, but it seems to confirm the trend and shows that the new-crop PRO is in the right ballpark.
What is harder to understand is the decline in the old-crop wheat 2005-06 PRO.
David Przednowek, Canadian Wheat Board marketing manager, says that farmers in the final quarter of the crop year delivered less wheat than expected, preferring to carry more into the higher priced 2006-07 crop year. This reduced the amount of grain that the board could sell at higher prices in the final months of the old crop year and lowered its ability to raise the year’s pooled price.
Przednowek added that the board’s fixed costs would be spread over a smaller than expected tonnage and that too hurt the July old-crop PRO.
For me, this would be a satisfactory reason for why the old-crop wheat PRO did not rise, but it is a disappointing explanation for the $3 per tonne drop in wheat.
It is not as if the May PRO had risen in expectation of a big finish to the crop year and now that optimism had to be scaled back.
Aside from a one month blip up in February, the hard red spring wheat PRO had been steady since January, not reflecting any of the increasing trend in market wheat prices that began in March.
Turning back to the new crop year, the supply side of the wheat market story continues to support prices.
You can read the story about the International Grains Council outlook on this page.
The IGC dropped its world production forecast by nine million tonnes since last month, reflecting that in many key wheat-producing areas, June and July were hot and dry.
More cuts are likely because Canada’s crop suffered through July and the yield potential now is lower than it was a month ago and the IGC forecast did not reflect that.
Here is a roundup of other market news, all of which support grain prices.
India last week tendered for another 400,000 tonnes of wheat. That is on top of 3.5 million tonnes already contracted, indicating that Indian officials are not yet comfortable with food supply after a disappointing winter crop harvest. Pulses were included in the disappointing crop and India’s imports are expected to be solid.
Australia’s AWB Ltd. cut its forecast for the country’s 2006-07 wheat crop by about 20 percent last week to 18-20 million tonnes. A shift to wet weather could still preserve the high end of the estimate, but Australia seems caught in a persistent dry pattern.
The Australian Oilseeds Federation estimated 2006-07 canola production on July 17 at 1.14 million tonnes, down from 1.44 million last year, but noted its forecast could fall if dry weather continued.
The canola production story was also negative in North Dakota where for the week ending July 23, the crop was rated 16 percent poor to very poor, 41 percent fair and 43 percent good to excellent.
That is well down from the same time last year when only three percent was poor to very poor, 16 percent was fair and 81 percent was good to excellent.
So it would appear the North Dakota canola crop is going to be disappointing in a year when biodiesel production is slated to begin. The 322 million litre, canola-based biodiesel plant that Archer Daniels Midland is building in the state is slated to begin operating in the spring of 2007.
Finally, a heatwave stressed Midwest U.S. soybean and corn crops early this week, with the most impact on soybean pod filling.
