Party poopers at this year’s wheat rally don’t have much chance of gate-crashing the new-crop market.
Analysts say “minor” or “non-traditional” wheat exporters do not have big crops this year. The best of the bunch, Kazakhstan, appears to have an average crop growing in its central Asian fields right now.
India and Pakistan harvested significantly smaller crops this spring than the year before.
Eastern European farmers are having problems and are heading for a small crop.
Russia and Ukraine have had so many weather problems that they are expected to import grain in the coming year.
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“Despite the improvement in the western Canadian situation, worldwide wheat is having some problems in terms of production,” said Canadian Wheat Board weather analyst Bruce Burnett during a crop conditions briefing June 12.
During the summer of 2002 and into the harvest, wheat prices soared because four of the world’s five major wheat exporters had small crops.
But over the winter wheat prices fell from their peak as countries like India, Pakistan, Russia and Ukraine proved they could produce big crops and market them.
India and Pakistan surprised many by being players at all. Russia and Ukraine shocked the market by being able to get millions of tonnes of export grain through transportation systems many considered antiquated and incapable.
These countries have little chance of repeating their performance in 2003-04, analysts say.
India and Pakistan produced smaller crops this year because of poor monsoons.
“They are still exporting, but they are not expected to be as active,” said Burnett.
Russian and Ukrainian crop production has been ravaged by severe winterkill of fall-seeded crops and a drought this spring.
If their crops turn out as dismal as they appear, they will have to import grain, and that may suck up much of Kazakhstan’s surplus production.
“It might not get out onto the general (world) market,” said Burnett.
Among the traditionally large exporters, both Canada and the United States are faring well, with big crops of wheat growing in good conditions.
But Australian farmers are having problems with continuing drought in some areas, and with ill-timed rains in other areas. If poor conditions continue the potential for the Australian crop will be damaged.
Because of problems in other wheat producing regions, Kansas State University commodity market analyst William Tierney is recommending American farmers buy a piece of the wheat market’s upside potential.
He expects wheat market prices to fall for the next 45-60 days, then rebound. If problems continue, overseas prices could strongly rally.
To capture that possibility, Tierney suggests that American farmers buy March call options.
“I would definitely want to retain ownership at that point,” said Tierney. “It’s worth 10 or 12 cents to buy yourself a 2004 call option.”
