The grinch stole the wheat market over Christmas and he may not return it in the new year. The Canadian Wheat Board thinks wheat may not regain its autumn highs.
“It looks like things were overdone a bit when the highs were set,” said CWB market analyst Dwayne Lee.
A one-two punch by other exporters has knocked back demand for U.S. wheat from foreign buyers, sending U.S. wheat futures contracts down from the highs set in September.
“We’ve come off a dollar per bushel U.S. since that time,” he said.
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The board dropped its wheat price expectations by $7 to $12 Cdn per tonne in its Dec. 19 Pool Return Outlook, citing several negative factors.
While wheat supplies are low in most of the major traditional exporters, such as Canada, the United States and Australia, minor league players such as India and the former Soviet Union have filled in some of the demand that would normally have kept wheat prices higher.
“The minor exporters are doing far more than anything anyone thought they could,” said Lee.
These countries supply low quality wheat, but many buyers are using it to fill in for more expensive, high quality wheat from the traditional exporters.
The other force pressuring markets is the European Union, which recently subsidized exports of about one million tonnes. The EU did not have a small crop and is shoveling grain into potential U.S. markets, lessening expected demand for U.S. wheat.
Australian and Argentine farmers are now harvesting their crops, the small size of which the market has already factored into contemporary prices. Once these crops are off there won’t be new supplies for a few months.
The first new supplies will come from India, which harvests in March, April and May. Pakistan’s crop begins coming off in April.
Winter wheat harvest in the EU and North America starts in May, but the grain does not reach the market before June.
Until these new crop supplies hit the market this spring, traders will closely watch the non-traditional exporters to see if they can keep filling demand.
“We’ll have to see whether they can continue to export at the same rate,” said Lee.
“They’ve done very large programs so far.”
Although prices are well below their highs of September, they are still high compared to the historical average. That will likely end next summer if the major exporters get average crops.
That’s not a happy outlook, but there is still cause for hope. Any production problems in the coming winter wheat or spring wheat crops could send prices back up.
“With low carry-in stocks the risk is still there,” said Lee.
“We expect a bigger crop (but) if there are any production problems . . . things can still happen.”
In the December PRO, durum prices were also down between $4 and $7 per tonne. Heavier than expected EU exports are blamed for that decline, but the CWB expects the durum market to stay strong over the winter because of low North American supplies.
The feed barley price outlook dropped by $5 per tonne because of big EU and former Soviet Union supplies. The board said these exporters will fill 60 to 70 percent of global feed barley trade in 2002-03, a dramatic increase on their normal share.
Malt barley prices were firm overall, with some softening in Europe but strengthening in the U.S.
