Everyone knows grain markets look a lot worse now than they did last year at this time.
But that didn’t stop farmers and analysts from turning glum when the Canadian Wheat Board announced its first 2009-10 Pool Return Outlook Feb. 23.
The new-crop PROs are down by a quarter to a third from the first outlook last year at this time.
The PRO is an educated guess of what prices will eventually become for farmers, but it’s a key indicator that the Canadian and world grain trades look to when assessing the likely future values of hard red spring wheat, durum and malting barley.
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The new-crop PRO is also below present PRO values for the 2008-09 crop. The January PRO for 2008-09 No. 1 CWRS 13.5 percent was $8.36 per bu., No. 1 CWAD 13 percent was $9.80, feed barley was $4.07, two-row malting barley was $6.97 and six-row was $6.53.
At this point, 2009-10 looks like a less profitable year than 2008-09.
CWB market analyst and risk management specialist David Boyes presented the bad news to farmers and the industry at the Grain World conference in Winnipeg. He found positive sides to the new prices to take some of the gloom off the announcement.
He noted the 2009-10 PRO is the third highest starting PRO the wheat board has ever released.
The 2008-09 crop ended up being far larger than any major analysts predicted before the growing season, but even with worldwide production expanding 55 million tonnes beyond initial CWB predictions, stocks-to-use ratios are still tighter than they have been for many years.
“If we have any kind of production shocks, if we have any kind of production difficulties, you can see where if we start driving those stocks down again, versus population, we’re really not getting comfortable stocks – (a price rally could ensure),” said Boyes.
Earlier in the day, world-renowned agricultural economist Alex McCalla of the University of California and agricultural economist Brian Oleson of the University of Manitoba both drew attention to the tight stocks. In a broad examination of agricultural commodity trends, they attributed some of last year’s huge price rally to stocks-to-use ratios.
“They are almost identically the same now … as they were in 1972-74,” said McCalla.
That was the last major explosion of crop prices.
Neither McCalla nor Oleson predicted the low stocks-to-use would spark another rally, but said it was an important underlying supply and demand factor.
The board expects modestly smaller crops in all major wheat producing countries this coming year, with the exceptions being Australia and Argentina. The CWB expects world wheat production in 2009-10 of 633 million tonnes, about 50 million tonnes down from the 683 million tonnes produced in 2008-09.
In 2007-08, the world wheat crop was 611 million tonnes.
The CWB expects Canada’s all-wheat production to drop 16 percent, or 4.7 million tones, to 23.9 million tonnes from 28.6 million tonnes in 2008. U.S. wheat production is expected to drop about 15 percent or 10.1 million tonnes to 57.8 million tonnes, said the CWB.
It also believes that demand for milling wheat will remain strong, regardless of the economic malaise.
The fight for sales this winter has been more intense than usual because low ocean freight rates make the trading “neighbourhood” bigger, Boyes said.
Global stocks grew slightly in 2008-09 and if projections are correct, they will grow slightly more by the end of 2009-10 as declining production is met by declining demand.
Durum’s more bearish outlook is based on good weather and crop prospects in the key importing areas of North Africa and expectations for a global crop close to the size of 2008-09. Boyes said some demand was destroyed by last summer’s price spike and that is undermining durum’s outlook.
