The latest pool return outlook from the Canadian Wheat Board provides the strongest indication yet that the board’s 2002-03 wheat pool account will go into a deficit.
Wheat prices in the July 24 PRO for the crop year just ending are exactly the same as the initial payment for all grades and classes of wheat except durum.
Wheat board officials won’t comment on what that says about the prospects for a deficit, but market analysts like Charlie Pearson of Alberta Agriculture say the message is clear.
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“To me, the market or price signal in those numbers is that the board’s wheat pool account is in a deficit, the amount of which will be determined by the next four or five weeks of sales,” he said in an interview last week.
The new PRO for No. 1 Canada Western red spring wheat is $256.75 tonne, the same as the initial. That’s down from the previous PRO of $258 a tonne, released in May.
The same holds true for other classes, including No 1 Canada Prairie spring white at $213 a tonne, No. 1 CW red winter at $206.80 and CW Feed at $128.50.
The fact that the pool return outlook matches the initial payments means one of two things.
It could mean that by some incredible coincidence, the board’s sales of wheat in 2002-03 will fetch prices that exactly equal the initial payments for all grades and classes.
Or it could mean that the returns from those sales will fall below the initial payment, leaving farmers to pocket only the government-guaranteed initial.
Pearson said if the board felt there was any possibility of a surplus and a final payment, the PRO would have been set a dollar or two a tonne above the initial.
“The fact that it matches right down to the penny clearly signals to me that they’re in a deficit,” he said.
Even if the projected return from sales was $15 or $30 a tonne below the initial payment, the PRO would still be set at the initial because that is how much farmers would receive for that year’s sales.
Wheat board officials are loathe to talk about a deficit, which can be seen as providing a direct government subsidy to farmers through the CWB. That’s a politically explosive issue in terms of wheat trade relations with the United States and world trade discussions. They insist the final accounting can’t be done until all the numbers are in.
“There is really no point in speculating whether there will or won’t be a deficit,” said CWB market analyst David Boyes.
The 2002-03 marketing year won’t be closed down for another four or five weeks and there are still some sales to be made, he said, adding that the wheat market has been strengthening in recent weeks due to dry conditions in North America.
However, he acknowledged that prices won’t take a huge jump and analysts say that the board’s projections of revenue from those sales have already been worked into the PRO.
If there is a deficit, the biggest culprit will be the unexpected rise in the Canadian dollar in recent months, which reduced the nominal value of the board’s sales in Canadian dollars by some 17 percent.
The other factor was the almost equally unexpected appearance in the export market of Black Sea region countries such as Russia and Ukraine, which sold large volumes of low quality wheat last fall and winter, driving down prices.
