Overseas outlook, domestic results bullish for CWB PROs

A potential "weather market" developing in South America, combined with "disappointing" canola yields and malting barley quality at home, is supporting CWB’s latest harvest and early delivery pool return outlooks (PROs).

The former Canadian Wheat Board on Thursday rolled out harvest PROs with durum values up $5-$10 per tonne, wheat values up $10 to down $2, malting barley up $35 and canola unchanged from the previous PRO on Sept. 14.

Early delivery PROs, meanwhile, were flat to $5 per tonne higher for durum, up $6 to down $4 for wheat and up $32 for malting barley compared to Sept. 14.

"Weather in South America is becoming an increasingly critical factor that will influence the direction of grain markets over the next number of months, and news is becoming more bullish," Winnipeg-based CWB wrote Thursday in its outlook commentary.

The market is now counting on large South American corn and soybean crops to replace drought-related U.S. export shortfalls — but South American crop prospects are "not looking favourable in some regions," CWB said.

Furthermore, CWB said, wheat production in the Black Sea region is set to be lower than it was two years ago when drought severely reduced wheat yields. Wheat export restrictions taking effect Nov. 15 in Ukraine were "supportive but expected" — and further restrictions, if any, from other countries in the region would support stronger prices, CWB said.

On the other hand, Western Canada’s spring wheat crop this year shows well-above-average protein content and above-average grade profile. On top of good U.S. spring wheat quality, the CWB said, those factors spell "limited" premiums for high-protein spring wheat — and grade spreads narrower than the average.

Thursday’s early-delivery PRO value for high-protein (14 per cent) No. 1 Canada Western red spring (CWRS) is down $4 per tonne from mid-September, at $366 ($9.96 a bushel), while No. 3 CWRS (13 per cent) is up $6, at $349.

Meanwhile, in the harvest pool, No. 1 CWRS (14 per cent) is down $2, at $368, while No. 3 CWRS (13 per cent) is up $8 at $351. The early delivery and harvest pools are now respectively about 30 and 20 per cent priced, CWB said.

The Prairie durum grade profile is also better than average this year, meaning limited supplies of lower-grade durum as well as lower discounts than average for lower-grade durum, CWB said.

In the early delivery PRO, most durum values are unchanged from mid-September except for No. 3 CW amber durum (CWAD), up $5 at $325 per tonne ($8.85/bu.). In the harvest pool, most durum values are up $5 per tonne — No. 1 CWAD sits at $350 per tonne — except for No. 3 CWAD, up $10 at $320 per tonne.

The durum early delivery and harvest pools are about 45 and 30 per cent priced, respectively, CWB said.

Barley, canola

On top of the tight supply-to-demand ratio for feed grains, malting barley quality results have been "disappointing" on the Prairies, putting upward pressure on North American malting barley values, CWB said. Australian barley production is also expected to be lower than last year’s.

Select CW two-row malting barley now sits at $347 per tonne ($7.56/bu.) in the early delivery pool, up $32 per tonne from mid-September, while the harvest PRO is up $35 at $350 per tonne. Both pools are less than 10 per cent priced, CWB said.

Canola production estimates in Canada have slipped on "disappointing" yields and wind damage, in the face of strong domestic crush demand. Oilseed markets will remain nervous about South American soybean-growing weather and crop prospects, CWB said, and "should South America run into soybean production problems, expect oilseed prices to strengthen."

CWB said its canola harvest PRO, unchanged at $660 per tonne ($14.97/bu.), reflects canola futures values in the range of $630-$640 per tonne through May 2013.

CWB PROs are no longer updated on a monthly basis, but will next be updated "when market conditions warrant."

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