Prices have shot up for the wheat and barley that prairie farmers grow
this summer. They could go higher in the next few months, analysts say.
“I think there’s still some upside potential,” said Alberta Agriculture
market analyst Charlie Pearson. “Even with this rally there’s more room
to go up.”
Last week the Canadian Wheat Board increased expected values for all
hard red spring wheat varieties of more than $25 per tonne. The Pool
Return Outlook for No. 1 CWRS with 13.5 percent protein rose to $228
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per tonne from $201 in June.
Feed barley values also leapt, from $136 per tonne in the June PRO to
$168 in the July PRO. Malting barley followed the pattern, with all
classes expected to make at least $30 per tonne more than was expected
a month ago.
Durum prices did not increase significantly, a reflection of the good
growing conditions in Canada’s traditional durum zone in the southern
Prairies. The increase in the wheat and barley PRO prices reflect wheat
values on American commodity exchanges.
Market analyst Ken Ball of Benson Quinn-GMS said these higher prices on
American futures markets are due almost entirely to the state of winter
and spring wheat crops in the United States.
“It’s U.S. fundamentals that have been dominating the wheat market,”
said Ball.
“U.S. fundamentals are tight now.”
Many farmers have been annoyed by years of talk about low world wheat
stocks that have not led to higher prices. Ball said that has been due
to the large size of recent U.S. crops, which allowed buyers to relax
and ignore offshore supplies.
Now that the U.S. crop looks short this year, possibly at 500 million
bushels compared to the recent range of 750-950 million bu., the price
setting U.S. markets are reacting.
“It’s been talked about being tight for four years now … and finally
we’re getting some reaction,” said Ball.
He cautioned that farmers should not expect a rocket ride. He doesn’t
believe world wheat stocks are as tight as many think.
Canada will have a small crop and Australia may, but the European
Union’s crop appears to be large. Small players such as India,
Pakistan, Eastern Europe and the former Soviet Union are wild cards.
If those small players stay out of the market, prices can continue to
head up. But if those countries, which used to buy wheat, start selling
into the world market, the price rise could end early.
Buyers on the world market know these countries could pump 12-14
million tonnes of wheat into the market.
“That’s keeping the world market relatively subdued,” said Ball.
However, if those countries do not make large sales into the world
market, the surge can continue.
But Ball doesn’t think the pace of increases can be sustained. If the
present rise continues, wheat would be worth more than $6 US a bu. by
Christmas. That’s unlikely.
“Whenever you see a market going up that steeply and project it forward
and see prices that don’t seem to make sense, then you know the market
has to correct,” said Ball.
“It has to fall backwards and then recommence the trend upwards at a
more shallow pace.”
The time for that correction may be now, Ball said. Buyers know all
about the North American production problems and are unlikely to be
scared into sharply higher prices.
At the same time, people with wheat stocks may decide it’s time to sell
and that could push futures prices back 10-20 cents US per bushel.
Pearson said the CWB might have trouble getting much malting barley out
of Alberta. Livestock feeders are matching PRO prices for malting
barley right now.
But the wheat board should be able to pick its best paying wheat
customers, since it will have a low supply.
“Any wheat sold (by the CWB) this year should be sold to the absolutely
best paying customers,” said Pearson. “I wouldn’t expect a lot to be
sold into the subsidized markets at all.”
