SASKATOON – Some grey clouds have unexpectedly appeared in the previously sunny outlook for prairie wheat growers.
A month ago, farmers were being told by the Canadian Wheat Board that their top quality wheat would be worth about $276 a tonne in the 1996-67 crop year, which translates into a Saskatchewan farmgate price of about $6.21 a bushel.
Last week, they were told it will sell for about $255 a tonne, or about $5.63 a bushel. That’s roughly the same as the projected final price for the current crop year.
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Markets are slumping in the wake of an improved outlook for wheat production in the U.S. and European Union, along with early forecasts of bigger crops in Australia and Argentina. Prices are also being affected by growing uncertainty about China’s import plans for 1996-97.
“International wheat prices have dropped quite a bit in the last month,” said CWB market analyst Larry Sawatzky. “I would say f.o.b. prices are down maybe $40 a tonne in the past month just generally.”
The latest pool return outlook from the Canadian Wheat Board is $20 to $24 a tonne lower than last month’s price projections for all the major classes of wheat and durum. The PRO is down $10 for feed barley and is unchanged for malting barley.
A lot has happened to wheat markets in the month that elapsed between the June and July PROs.
Record plantings in U.S.
The U.S. Department of Agriculture released figures indicating farmers south of the border planted a record 20 million acres to spring wheat, well above industry expectations of about 17.5 million acres.
In addition, the latest reports indicate that both the quality and the yield of the U.S. hard red winter wheat crop were significantly better than market-watchers in general and the board itself had earlier thought.
“Our people had been down there on two or three tours of the winter wheat area and the story they told was that the crop was really bleak,” said Sawatzky. “Now it looks not nearly as bad as everyone was expecting.”
The USDA is now forecasting a 1996 wheat crop of 61.6 million tonnes, up from last month’s estimate of 56.6 million. If that projection holds true, this year’s U.S. crop will be up four percent from last year, a surprising development.
Another indication of the more bearish outlook is the U.S. agency’s decision to lower its forecast of average farmgate prices by 50 cents a to $4.50 (U.S.) a bushel.
“This is clearly indicative of their perception that wheat prices will weaken during the coming months,” said Greg Doud, market analyst with U.S. Wheat Associates, a farmer-funded export promotion group.
However, he cautioned that even with the new numbers, U.S. ending stocks will be at their fourth lowest level since 1950 and the world stocks-to-use ratio will remain tight at just over 19 percent.
Prices subject to change
Whenever it releases a new PRO, the board emphasizes the numbers are not price guarantees, but estimates that can change as weather, production and trade patterns change. That’s particularly true at this time of year, said Sawatzky.
