What’s today’s outlook for the 2010-11 spring wheat crop?
The best view today is provided by the hard red spring wheat contract on the Minneapolis Grain Exchange. Here’s a chart:
I don’t know about you, but I find that pretty disappointing. Monday we’ll get a much more Canadian prairie-based, longer term outlook for the totality of the 2019-11 spring wheat crop in the Canadian Wheat Board’s first Pool Return Outlook of the 2010-11 year. It’ll be released during the CWB’s GrainWorld conference, which is held every year at this time. It’s the first best-guess of the board about what farmers, eventually, will get for the crop grown this summer.
The construction of the PRO is always a bit of a mystery to those outside of the CWB. It combines a lot of factors that don’t easily make for a simple price discovery like those on an MGEX contract, which are for a specific grade at a specific time in a specific place. The PRO has to throw in existing commercial sales for the 2010-11 year, expected sales, expected world quality production assumptions, expected prairie quality and quantity production assumptions, and demand expectations. The board is always pretty cagey about the sales side of its business, which makes sense, considering it lives in a cutthroat commercial environment. No grain traders anywhere reveal much about how much they sell, to whom, for how much.
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Its guesses about world wheat production and quality, and prairie wheat production and quality, have to be based on a lot of big assumptions, which is why projections often change so much around harvest-time and in the weeks afterwards, as assessments of the quality of the crop that actually came in across the northern hemisphere are tweaked. Remember late-summer, early-fall’s flurry of revisions from everyone – including the board – about protein levels in wheat in North America?
But the assumptions I’m interested in hearing about Monday are those for demand. For the sake of calculations, some demand numbers have to be plugged in to the infernal economic machine they have to use. But demand is hardly a set thing. The board’s got to come up with a single number for its PRO prices, so it must have to set down some hard number for demand expectations, and that’s an area fraught with difficulties these days.
Does the board believe the world economy is in “recovery” and likely to see stable or growing demand? Does it believe the risk of a double-dip recession is substantial or unlikely? This affects how much the world’s eaters are likely to demand our wheat.
Here’s how they’ve been promoting this year’s GrainWorld:
“GrainWorld’s 20th Anniversary To Focus on Economic Recovery”
That was the headline on the press release about the event, and it sounds to me pretty much like they’re recovery-believers. And the lede seems to generally back up that feeling:
“North American industry experts will delve into the question of economic recovery at GrainWorld 2010. Through a series of sector outlooks and analysis, experts will discuss what global economic recovery will mean for agriculture and commodity prices.”
However, the brief intro to the agenda in the CWB’s newsroom shows a much more nuanced pondering of the question of recovery: “Economic Recovery: Green Shoots or Summer Fallow?” That’s the headline, and the one paragraph following follows along in that vein: “The global economic recovery will be the focus of GrainWorld 2010. Has the recession ended and is the recovery taking root in the agricultural sector? GrainWorld 2010 will discuss the economy and how it is affecting farmers and the grain trade, both in Canada and around the world.”
That doesn’t sound to me to be as blindly believing in recovery.
Many analysts from many different companies and organizations will give their views on these questions and I’m not trying here to guess the details of their views. What I’m interested in is what sort of economic and demand assumptions are being made among the CWB’s price forecasters. A recovery implies stable or increasing overall world demand for grains and oilseeds. A double-dip recession implies likely weaker demand. Those have got to affect the price outlook for wheat.
So which assumptions of economic direction and worldwide demand are they making? That’s what I’ll be asking them Monday.
