SASKATOON – Another month has brought another drop in the price outlook for wheat.
In its latest pool return outlook the Canadian Wheat Board lowered its estimate of 1996-97 wheat prices by $13 a tonne for all classes of wheat. Last month, the PRO dropped by more than $20 a tonne.
And once again the drop was attributed to the fact that there’s going to be more wheat around this year than anyone expected a couple of months ago.
“International wheat prices have softened and they continue to soften, primarily because of good production prospects in several major importing and exporting regions of the world,” said wheat board market analyst Larry Sawatzky. “There will be more supplies chasing somewhat lower demand.”
Read Also
Storm dynamics and extreme rainfall
Besides moisture, instability and orographic lift, the next biggest factor that contributes to heavy or extreme rainfall is storm dynamics.
One of the biggest bearish influences in recent weeks has been indications that China, the world’s largest wheat importer, has a good crop in the works and won’t be buying as much from suppliers like Canada and the U.S.
In mid-August, the U.S. Department of Agriculture projected China will import eight million tonnes of wheat in the upcoming crop year, down from 12 million last year. China is expected to produce 107 million tonnes this year, up from 102 million.
Meanwhile, exporters will have more wheat to sell than last year, which could lead to more intense competition.
Among the major exporters, the European Union’s 1996 crop is projected by USDA to be up nearly nine percent to 93.8 million tonnes, while production is forecast to be about three percent higher in the U.S., a dramatic turnaround from earlier predictions of a drought-reduced crop. Canada’s wheat crop is expected to be about 20 percent bigger this year.
Good crops are also forecast for Australia and Argentina, although with southern hemisphere crops not harvested until December, predictions are uncertain.
Sawatzky added even though prices have been declining on the expectation of a bigger crop, world wheat stocks are still projected to remain tight at 108.7 million tonnes, which represents about 19.2 percent of total use.
And, he said, it’s still early: “The 1996-97 crop year only started Aug. 1, so things could still change quite a bit.”
For example, at this time last year, the 1995-96 PRO for No. 1 CWRS wheat was $220 a tonne. By April that was all the way up to $273, while the current estimated pool return for 1995-96 is $257 a tonne.
Prices should start to recover when buyers re-enter the market in the next couple of months. Demand has been somewhat slow lately because when prices start to fall, buyers stay out of the market, which drives prices down even further.
Charlie Pearson, a market analyst with United Grain Growers Ltd., said he thinks the wheat market is ready to turn more bullish, especially if weather affects the quality of the North American spring wheat crop.
“Major world importers entering the market over the next few weeks will be a factor that pushes prices higher this fall,” he said.
Captured higher prices
Sawatzky said because the board has lowered its price outlook it doesn’t mean the agency has missed out on the high prices that were in the market a couple of months ago.
“We were making forward sales for sure,” he said. “It’s just that demand was somewhat lower.”
The board also reduced the price outlook for feed barley by $4 a tonne, putting No. 1 CW at $167 a tonne (basis in store at export position.)
That reflects a 10 million tonne increase in world production to 151 million tonnes, including a record 15 million tonnes in Canada, and a significant increase in global supplies of all feed grains.
The European barley crop will return to more normal levels this year after being reduced by drought in 1995, so there will be more EU barley in the export market.
