SASKATOON – For the fourth consecutive month, the Canadian Wheat Board has lowered its forecast of 1996-97 wheat prices.
The new Pool Return Outlook projects an export price for No. 1 CWRS of $217 to $237 a tonne, down $15 from the previous month’s outlook and a whopping $54 a tonne below the May forecast.
But market analysts outside the board say the agency is being conservative in its wheat price projection.
“My own analysis, using much the same methodology as the board although with less information, says $240 to $245 a tonne,” said Glenn Lennox of Agriculture Canada. “They’re being cautious, they’re not being bullish.”
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Charlie Pearson, who tracks wheat markets for United Grain Growers Ltd., said he’s reasonably optimistic about wheat prices and thinks the PRO has bottomed out.
“I would say it has, although having said that, I’ve been wrong three months in a row,” he said.
Projected return
The mid-range of the PRO ($227 a tonne) works out to a Saskatchewan farmgate price for No. 1 CW wheat of about $4.87 a bushel, compared with the projected return of $5.61 for the 1995-96 crop year.
Wheat board market analyst Larry Sawatzky said the board has been lowering its PRO because the world wheat crop looks bigger every month.
The U.S. Department of Agriculture projects the five major exporters, the U.S., the European Union, Canada, Australia and Argentina, will produce a record 222.5 million tonnes of wheat, up from 196.5 million tonnes last year.
The PRO also reflects good crop prospects in several importing regions, notably China, and the reintroduction of export subsidies.
The size of the northern hemisphere crops are pretty well set, although quality remains a question. The big unknown is southern hemisphere crops, which won’t be harvested until December, and the impact of export subsidies.
Asked if the PRO has bottomed out, Sawatzky was reluctant to commit himself.
“The PRO should stabilize at some point, but it’s very difficult to say,” he said. “Unexpected events happen, otherwise we wouldn’t have had to lower the PRO the last four months.”
Lennox said he thinks the PRO has probably fallen as low as it’s going to go. About the only things that could drive it down farther would be unexpectedly huge crops in Australia and Argentina or a major subsidy war between the EU and the U.S.
His analysis indicates the board is assuming U.S. export subsidies of about $5 a tonne this year.
Things could change
On the other hand, a number of developments could drive the PRO back up, including a cooling of subsidy threats, improved trading relations between the U.S. and China, tighter than expected stocks in the U.S., problems with the southern hemisphere harvest and increased feeding of wheat to livestock due to low corn supplies.
“There are more factors out there that are likely to increase the outlook than decrease it,” said Lennox.
Pearson said the new PRO reflects a U.S. hard red winter price on the Kansas City market of $4 to $4.50 a bushel. He doesn’t think the U.S. price will drop below $4.50 and could approach $5 this winter.
“The numbers I would be using would be at the top end of the CWB’s range,” he said.
Meanwhile, the board also lowered its PRO for feed barley by $7 a tonne, reflecting a 16 percent increase in the European crop and more aggressive export subsidies than earlier anticipated. Recent subsidies have been as high as $40 a tonne.
