Market fundamentals push wheat PROs lower

Global wheat fundamentals and a thick macroeconomic smog have settled down on top of the Canadian Wheat Board’s latest pool return outlooks (PROs).

The CWB on Thursday rolled out PROs for 2011-12 wheat that are down $1-$14 per tonne from their October levels, with durum values down $1-$25, malting barley down $4 and Pool A feed barley down $3.

Sitting over all commodity and currency markets, the CWB said Thursday, is "persistent doubt regarding the health of the world economy," in turn causing speculators and traders to "retreat to perceived safe havens," namely gold and the U.S. dollar.

Pressure on the Canadian dollar may perk up farmgate values on the Prairies, but net impact could be negative if world prices — denominated in U.S. dollars — were to decline at a faster rate. Typically, the board noted, "when the U.S. dollar strengthens, agricultural commodity prices decline."

Current wheat fundamentals "are not supportive of sustained high futures prices," the CWB said, noting significant export competition, particularly from from the Black Sea region.

Given that, on top of the U.S. Department of Agriculture’s latest World Agricultural Supply and Demand Estimates, showing a 30 per cent stocks-to-use ratio; estimated 2011-12 global production of 683.3 million tonnes (the third-largest crop on record); and forecasts for a similar harvest in 2012-13, "wheat will need outside help to establish a clear upward price channel," the board said.

The PRO value for high-protein (14.5 per cent) No. 1 Canada Western Red Spring wheat was pegged Thursday at $313 per tonne ($8.52 per bushel), down $3 per tonne from its October level. No. 1 CWRS at 11.5 per cent protein, meanwhile, dropped $14 per tonne, to $262 ($7.13/bu.), while No. 2 CWRS (13.5) dropped just $1 per tonne, to $299 ($8.14/bu.). CW Feed wheat is down $9, at $207 per tonne ($5.63/bu.)

The CWB said Thursday it has priced about 40 per cent of expected 2011-12 crop year deliveries of wheat, and foresees its wheat pricing level will reach about 50 per cent by the end of December.


"Buyer resistance to the high price regime" has seen durum prices slip somewhat while global durum trade volumes have been "minimal," the CWB said. "Buyers are substituting non-durum wheat where possible and generally stretching out supplies until 2012-13 new-crop production becomes available."

Nevertheless, durum prices remain "historically high," which in turn could encourage more durum acres in Canada, the U.S. and Europe in 2012-13, the CWB said.

For example, values for No. 1 CW amber durum saw the largest dollar-per-tonne drop in the CWB’s PROs. No. 1 CWAD (11.5 per cent protein) was pegged Thursday at $360 per tonne ($9.80/bu.) and No. 1 CWAD (12.5) sat at $365 ($9.93/bu.), both down $25 per tonne. No. 1 CWAD (14.5) fell $21 per tonne, sitting at $381 ($10.37/bu.). No. 4 CWAD, meanwhile, slipped $1 per tonne, pegged at $267 ($7.27/bu.).


The market for malting barley is under pressure from "international competition" rising into China, the world’s largest malting barley importer, the CWB said. Australia and Argentina, for example, appear to have large and "potentially good-quality" crops.

Western Canada’s exports, however, have support from a declining Canadian dollar and a "very high-quality" barley crop on the Prairies, and from the U.S. market, where production and quality problems have led to that country’s smallest barley crop since 1936.

More generally, barley fundamentals remain "relatively tight" compared to wheat, although declines in world barley trade over the last five years have "taken a lot of the heat out of a tighter supply-and-demand environment."

Further devaluation of corn over the last month has eroded outside price support for feed barley, the board noted, as corn and wheat are being worked back into feed rations at barley’s expense.

The board on Thursday opened its Pool B for No. 1 CW feed barley at $222 per tonne ($4.83/bu.), while Pool A was pegged at $232 per tonne ($5.05/bu.), down $3 from October. Select CW two-row and six-row malting barley values dropped $4 per tonne from October levels, to $318 ($6.92/bu.) and $302 ($6.58/bu.) respectively.

The CWB’s next 2011-12 PRO is due out Dec. 15.

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