After three months of bad news, there was a glimmer of hope for financially strapped grain farmers last week.
In its latest pool return outlook, the Canadian Wheat Board boosted projected prices for wheat, durum and feed barley in the 1998-99 crop year.
The PROs for wheat are up by $5 to $8 a tonne, durum is $5 a tonne higher and feed barley was raised by $6 a tonne. Designated barley was unchanged.
Farmers watched with mounting dismay when the board lowered the PRO in July, August and September, as prospects of a record world wheat crop, sluggish demand and export subsidies put global grain markets on the skids.
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But things began to turn around in early October after the United States Department of Agriculture lowered its estimates of world wheat production and carryover stocks.
The agency reduced its production forecast by five million tonnes to 591 million tonnes (still the second largest crop ever) and the carryover by four million tonnes to 124 million tonnes.
The December futures contract for wheat at the Chicago Board of Trade, which was languishing at $2.53 (U.S.) a bushel at the beginning of September and had crept up to $2.69 at the beginning of October, last week was approaching $3 a bushel.
CWB market analyst Larry Sawatzky said while the price outlook becomes more firm with each month, there is still room for the price to move in either direction.
“The supply situation for this year is essentially determined,” he said. “Demand is the key uncertainty right now and that’s what will have the biggest impact on the market.”
On the positive side, if some unexpected demand developed in certain markets, the price could rally higher.
Conversely, if some of the expectations that have now been built into the market fail to develop, such as the U.S. providing a significant amount of food aid wheat to Russia, then the price could drop again.
“There was talk that up to three million tonnes of U.S. wheat would be bought by the government and donated to Russia,” said Sawatzky. “That would certainly tighten up the U.S. supply/demand balance sheet. It was a big contributing factor to the rally.”
Other factors contributing to a brighter wheat outlook included a reduction in the Australian crop to 21.9 million from 23.5 million tonnes, a spill-over effect from stronger soybean and corn markets and a continued weak Canadian dollar.
Durum also brighter
For durum, global demand has been steady and markets have increased partly due to rallies in other commodities. Markets in the U.S. have moved higher as uncertainty over farm programs has limited durum sales.
Feed barley is being supported by stronger North American corn, wheat and soybean markets, along with purchases by China of European and Australian feed barley. The USDA also reduced its U.S. corn supply estimate. Economic problems in southeast Asia continue to hurt feed grain markets.
