CWB Grain Price Forecast

The Canadian Wheat Board (CWB) has released its July 2010 Pool Return Outlook (PRO) for the 2009-10 crop year. Wheat values are up $1 per tonne for all grades and classes from the last 2009-10 wheat PRO, released in May. Durum is up between $1 and $4 per tonne over May's outlook, depending on grade and protein level. Malting barley is down $1 per tonne from the previous PRO, while feed barley is unchanged from its last outlook in June.
As the marketing year comes to an end, the world wheat market remains heavy with supply. The latest US Department of Agriculture World Agricultural Supply and Demand Estimate (May) forecasts 2009-10 global wheat production at 680 million tonnes. This represents the second-biggest production after the 683-million-tonne world wheat crop of 2008-09. The current estimate for world ending stocks sits at 193 million tonnes, a 38-million- tonne increase over carry-in stocks.
An extended weather market has impacted futures to the upside over the past three weeks. Due to 2010-11 production uncertainty persisting well into the summer, there has been some late marketing-year strength in the wheat market. Most notably, production difficulties in Russia and Kazakhstan have left some traders short, requiring intensified efforts to find coverage ahead of delivery dates. This has offered some strength to offshore cash markets. However, as of yet, little of this business has allocated itself to North America which, although improved, remains priced out of the nearby base-grade wheat market.
Broader economic markets have stabilized over the last month. However, stability is a different environment than recovery. Overall economic indicators remain mixed and there is still apprehension that the world economy could trend down. Investors remain wary, but relatively flush with cash. Rallies such as the recent one in the wheat pits stimulate some cash inflow, which further increase the technical run-up. Fundamentals strongly suggest that nearby wheat prices have room to move down.
Foreign exchange rates remain a pivotal determinant of overall farmgate returns. The Canadian dollar has traded within a four-cent channel since the May 2009-10 PRO. Of course, this late in the marketing year, the bulk of the wheat pool has been priced, so the impact of currency fluctuations (even when seemingly beneficial to Canadian-dollar farmgate returns) is limited.
Price pace: The PRO is the forecast of the final pool return. It includes the estimated value on grain that has already been priced, and the forecasted value on grain that has yet to be priced. The CWB prices wheat on a pace that is approved annually by the board of directors. The futures and options markets are used to moderate faster or slower cash sales to ensure pricing follows this pace. At the time of this PRO, the CWB has priced approximately 96 per cent of the expected 2009-10 crop year deliveries of wheat.
Overall, the durum market continues to be burdened by supply. However, concerns about 2010-11 Canadian production and the European Union (EU) crop have created marketing opportunities at the close of the 2009-10 marketing year. The US has been largely absent from the world durum market, despite abundant 2009-10 ending stocks and the anticipation of favourable production results in 2010-11. The bulk of US durum stocks, estimated at 34 million bushels as of June 1, remain located on-farm as farmers who benefit from a favourable loan rate are able to maintain positive cash flow without ceding beneficial ownership. The Euro, after bottoming out below $1.20 US, has recovered closer to $1.30 US, which has reduced some of the negative impact that a weaker Euro has had on both EU demand and competition.
Feed barley
The global barley trade remains subdued, with little offshore demand and prices that do not encourage Canadian offers. Livestock returns have significantly improved, but an abundance of dried distillers' grain, off-grade corn, wheat, and barley have kept competition amongst feed sources prevalent. The relatively weaker Euro has kept EU barley front and centre as an affordable option for offshore barley importers. Global barley stocks are forecast to be 36 million tonnes, the highest level recorded in the last 50 years.
Designated barley
Demand remains fairly well covered for the remainder of the marketing year.
The EU remains long barley, with any incremental 2009-10 malting barley demand still able to obtain EU malting barley. Supply combined with falling ocean freight rates has also kept EU barley as an option into the Chinese market, which has created an effective cap on landed Chinese malting barley prices. In fact, the 2009-10 global malting barley supply will stretch through into 2010-11, abating any price appreciation until the second quarter of the new marketing year.