Get ready for more of the same wheat and durum prices.
That’s the bottom line from the Canadian Wheat Board in its first Pool Return Outlook for the 2010-11 crop year, which is projecting prices a few cents per bushel below current 2009-10 PRO prices.
“We’re looking at a year where we’ve come out of two consecutive years of rebuilding wheat stocks, probably be building stocks again this year – a fairly bearish scenario,” said David Boyes, the Canadian Wheat Board’s manager of commodity risk management, during the board’s GrainWorld conference this week.
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The board is predicting No. 1 Canada Western red spring wheat with 13.5 percent protein at $236 per tonne, or $6.42 per bushel, for 2010-11 versus $242 per tonne, or $6.59, for 2009-10.
Boyes didn’t provide much reason for optimism on wheat prices. A huge surplus hangs over the market, crushing hopes for a shortage-ignited rally.
Instead of the 633 million tonne global crop the wheat board forecast last year, farmers grew 676 million tonnes.
However, some support for wheat prices will come from much better returns for corn and soybeans in the United States, which should drag more acres into those crops, Boyes said. That will provide some support for wheat prices to not fall too far behind its crop cousins.
The new crop PRO shows a narrower spread between high quality wheat grades and lower quality grades, Alberta Agriculture analyst Charlie Pearson noted at the conference.
Boyes said that narrowing should occur if the world produces a crop with a normal spread of qualities. The current world crop is low on quality and high on low grades.
“What we’re seeing is a return to normal premiums,” he said.
Boyes noted the perils of predicting crop prices months before the crop is seeded and most of a year away from when it will be sold. He said last year at this time the PRO for new crop wheat was $289 per tonne, which was considered bearish at the time. The January PRO of $242 per tonne is much lower than what analysts expected in February 2009.
The only thing keeping wheat price expectations as firm as they are is the better situation for corn and soybeans. American farmers will likely keep acres constant or increase them in those crops, leaving a smaller wheat acreage to meet world demand.
“Despite the fact that we’ve got 200 million tonnes of wheat stocks … we’ve still got Chicago wheat flirting with $5 prices over the last year,” said Boyes.
“It’s fairly resilient how high wheat has managed to trade.”
Boyes said the world economic situation is unsettled, but wheat demand tends to be stronger than that of many other commodities.
