Traders Begin To Focus On Wheat Prospects For 2011

Canola futures on the ICE Canada trading platform were little changed during the week ended November 26. Some fractional advances were seen in the nearby contracts while the more deferred values experienced some minor losses.

The general upward momentum seen in CBOT soybean and soyoil values provided a firm floor for canola, as did the continued demand from the domestic crushing sector. The absence of fresh export business helped to weigh on prices as did the overall weakness in global crude oil values.

The Canadian dollar suffered a fairly large setback during the reporting period, which would normally support canola. However, the currency was doing little to temper the declines in canola with values actually losing ground to soybeans when the exchange rates were factored in.

Ideas that canola output in Western Canada is higher than what Statistics Canada said in its last report also undermined deferred contracts. Statistics Canada will release an updated production survey on Dec. 3.

Western barley futures saw some minor volume during the week, but much of the action was the bailing out of the nearby December contract ahead of it becoming a cash delivery month. Commercials were the only participants.

SOUTH AMERICAN CONCERNS

Chicago Board of Trade soybean futures were up on the week with steady export demand and concerns about dryness in the main soybean-growing regions of Brazil and Argentina providing much up the upward stimulus.

Military tensions between South and North Korea, along with concerns about the expanding euro-zone debt crisis helped the U.S. dollar strengthen during the week, which in turn capped some of the upward momentum seen in soybeans.

Corn futures at the CBOT also managed to work their way higher despite the bearish aspects of the strong U.S. dollar and sentiment that China’s demand for U.S. corn will decline amid continued efforts by that country to curb its inflation rate. Dryness in a lot of key growing regions of the world, and firmness in the cash market gave corn values a firm base from which to work from. Spillover from the gains in soybeans also fuelled some of the buying interest.

CBOT wheat futures continued a slow, but steady trek upward, with good support also associated with the dry conditions in Russia’s, Ukraine’s and the U.S. wheat-growing areas. Overly wet conditions, meanwhile, are believed to have reduced the size and quality of Australia’s wheat crop. Strength in the U.S. dollar helped to restrict some of the upward price momentum in CBOT wheat futures.

There is nothing certain about the world’s wheat supply situation and there is a strong possibility that the U.S. could become the No. 1 destination to purchase the commodity from in the year ahead if the dry growing conditions that are plaguing some of the world’s wheat-producing regions continue.

The world wheat export market has changed dramatically, and it all began with the Russian government deciding to stop shipping any kind of wheat due to drought-reduced output. In fact, before Russia put the brakes on its wheat export program, the country was the world’s third-largest shipper of wheat.

The drought in Russia, which ranked as the worst anyone can remember, cut wheat output there dramatically, and there are already concerns that next year’s crop will also be altered downwards because of the continued dryness. Russia as a result is expected to hold its wheat off the world market until at least the beginning of June in 2011.

DRY U.S. WINTER WHEAT AREA

Contributing to the U.S.’s new designation as the globe’s major wheat supplier are the production problems in its own backyard. The U.S. winter wheat crop has already had its fair share of dryness issues with many market participants expecting output of the crop to be down significantly next summer. Dryness issues also continue to plague some of the wheat-growing areas in the European Union.

A smaller-than-anticipated wheat crop in Canada, along with reports of major downgrades in quality, is also helping to improve the U.S. wheat export position. Overly wet conditions during Australia’s wheat harvest have also created ideas of a smaller crop to work with. Prior to Russia becoming one of the big suppliers of wheat on to the world market, Egypt had been one of the U.S.’s top wheat customers. Egypt remains one of the world’s largest importers of wheat.

Russia with its wheat export surplus had been aggressively going after all the business it could get its hands on, and that included Egypt, which in fact had until recently been snubbing U.S. wheat as a result.

The U.S. had wheat supplies sitting at a 20-year high, but those stocks have already declined to 18-year highs given the fresh demand. Ending stocks of U.S. wheat had at one time been forecast in the 853-million-bushel range for 2010-11. However, with the strong demand the U.S. wheat carry-over projection is likely to drop to around the 500-million-bushel level.

The tighter world wheat supply situation should also result in a significant jump in world wheat values. And one would think that with the jump in prices will come a huge jump in planted area to wheat in both the U.S. and Canada.

However, with the upswing in soybean values in the U.S. and canola prices in Canada, producers in both countries are instead likely to lean towards giving more consideration to those crops rather than wheat.

There is no doubt that the price outlook for wheat in North America is definitely brighter than it was because of the dryness issues, but higher prices for U.S. corn and soybeans, and for canola in Canada, could further enhance the upward momentum in wheat.

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DWAYNE KLASSEN

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Forthree-times-dailymarket reportsfromCommodityNews Service,visitICEFutures Canadaupdates”at www.manitobacooperator.ca.

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