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Ukrainian Grain & Oilseed Market

Ukrainian Grain&Oilseed Market

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Most CWB PROs Up Again

24.09.2010 14:35 "Agro Perspectiva" (Kyiv) — With weather playing havoc on the Prairies, wheat, durum and feed barley values are all higher in the Canadian Wheat Board’s latest monthly 2010–11 pool return outlooks (PROs). Released today, wheat values are up between $4 and $30 per tonne from last month’s PRO, depending on class, grade and protein level. Durum is up between $1 and $21 per tonne. Malting barley is unchanged and feed barley values are up $3. With the change, the average expected pool return for No. 1 CWRS (13.5% protein) is now $8.16/bu, compared to $7.57 in August (I/S Vancouver or St. Lawrence). The average expected return for No. 1 CWAD (12.5%) climbs to $6.94 from $6.56. Feed barley rises to $4.94 from $4.88 in the mid-month PRO released September 10. Malt barley bucked the higher price trend. The average expected pool returns for two- and six-row barley stayed unchanged from August at $5.66 and $5.29/bu, respectively. At the time of today’s PRO, the CWB said it had priced approximately 24% of the expected 2010–11 crop year deliveries of wheat. A pricing level of 60% is anticipated by the end of December. Highlights of the board’s full commentary follow below: Wheat Since the August PRO, futures values have increased in all three North American wheat futures markets. Due in large part to the ongoing quality degradation in Canada, the spread between Minneapolis spring wheat futures and both Kansas hard red winter and Chicago soft red wheat has widened. Minneapolis December futures increased by almost 50 cents, Kansas December futures increased by roughly 35 cents and Chicago futures were up less than 10 cents. This is the strongest reflection of the fact that the Canadian quality profile is deteriorating and that quality results in other growing areas are less than desirable. December corn futures over the same time period are up over 60 cents and now are above $5 US per busl. Global wheat fundamentals have tightened considerably in 2010–11. World ending stocks are forecast to fall from 195 million tonnes to 175 million tonnes. The rapid escalation in corn prices and diminished quality prospects for the wheat crop should enable more wheat feeding. The end result will be that world carry-out stocks will likely end up somewhere between 160 and 170 million tonnes. Since the magnitude and direction of stocks changes are significant elements in price determination, 2010–11 ending stocks will continue to offer support to the current price situation. However, things get more ambiguous when we project out to 2011–12. In fact, overall world supply (the combination of increased production forecasts and carry-in) is off less than two per cent from the 2009–10 record of 845.5 million tonnes. Looking forward, factoring in an increase in world wheat acreage and projecting average weather conditions, it is not unreasonable to speculate that the world’s wheat supply will challenge the 2009–10 all-time high. Concerns regarding U.S. corn supply heightened over the last month as corn yield prospects deteriorated. There is a real danger that the U.S. will not harvest a record corn crop and might have to make do with less than 13 billion bushels of corn production. The natural reaction of the markets, as they saw 165 bushels per acre slip to 162.5 bushels per acre, was to bid corn up. Based on the current supply-and-demand balance, the reaction was merited and there is a definite need to start rationing demand to keep ending stocks above the 40-days-of-carry-out threshold. Demand will react and shift out of corn feeding, importing, and processing, but the question remains as to what the magic number will be. Corn at $5 per bushel does not seem to have the ability to get the job done, so expectations remain that corn is on a trajectory that has yet to peak. The corn story will continue to provide guidance to the future direction of the agricultural commodity complex. Strengthening corn prices provide broad support to the wheat complex. At the time of this PRO, the CWB has priced approximately 24 per cent of the expected 2010–11 crop year deliveries of wheat. A pricing level of 60 per cent is anticipated by the end of January. Durum Quality depth is the most intriguing issue in the durum market. The frost that reduced Canadian milling wheat quality potential also contributed to declining prospects for western Canadian durum. Demand has been steady, with the reported import coverage pace well ahead of last year. Global production is forecast at 34.7 million tonnes, which is 2.7 million tonnes below last year’s level. Canadian production is forecast at 3.3 million tonnes, the smallest since 2001–02. However, coupled with 2.7 million tonnes of carry-in stocks, the Canadian supply is sufficient to accommodate a 3.7-million-tonne export program. The bigger issue will be whether the quality supply will satisfy the depth of Nos. 1 and 2 CWAD demand. In the U.S., the durum elevator price remains at a discount to spring wheat. However, the discount has decreased in recent weeks as the pace of durum appreciation has outpaced that of spring wheat. The discount remains above $50 per tonne. As long as this continues, the U.S. farmer is going to be reluctant to sell durum and will instead focus on storage. There will be increased interest in 2011–12 durum seeding intentions in the EU, U.S. and Canada. Early indications are that EU durum planting will be slightly up. Durum planting in North Dakota will return to the domain of the core growers, based on the fact that the high loan rate will be less attractive given the run-up in the wheat, corn, and bean markets.

Agro Perspectiva

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