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Wheat Likely To See Some Strength Long-Term

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Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended Jan. 22 mixed, with canola higher and western barley lower. Canola was supported by steady demand, as exports continue to equal last year’s even without Chinese demand. There has been some slowdown in crusher buying though. Slower farmer selling and the weaker Canadian dollar also gave some support. The market ignored weakness in the U.S. soy complex. Commercials dominated the activity.

Western barley continued to work lower with losses in corn weighing on the market, but the main problem seems to be a lack of interest and liquidity in the market, which suggests the contract will be delisted at some point.

Corn and soybean futures in Chicago generally saw small losses during the week. The bearish mood prompted by the Jan. 12 U.S. Department of Agriculture report continued to weigh on values. Also undermining the corn and soybean markets were a firmer U.S. dollar and the move by U.S. President Barack Obama to limit the ability of the banks to participate in the markets with some of their hedge fund instruments. Soybeans did receive support from concerns about dryness for the Argentine soybean crop and fairly strong exports, with China a continued good buyer despite the moves by the Chinese government to dampen inflationary pressure. Corn futures were pressured by the sluggish export pace, the larger corn supplies in the U.S. and bearish technical signals. However, slower farmer selling, and ideas that the market was due for a technical rebound, limited the losses.

U.S. wheat futures saw modest declines in all three wheat futures markets. The large global and U.S. wheat supplies and bearish technical signals accounted for much of the pressure. The move by the U.S. government to limit U.S. bank participation in some of the hedge funds also accounted for downward pressure. However, ideas the market had become oversold and needed a technical correction higher and increased export demand did help to limit declines amid a lack of any really fresh news.


The global wheat market is starting to see a turnaround, but it will be slow and lethargic, unless some weather event appears to cut production in a significant way. I think we are likely three years away from a major rebound.

Wheat has suffered from several record global production years, with aggressive selling out of the Black Sea region keeping prices under pressure. The International Grains Council last week raised its 2009-10 production estimate to 674 million tonnes from their forecast last month of 668 million tonnes. This is down though from 2008-09 production of 686 million tonnes.

Despite exceptionally high consumption for 2009-10 of 642 million tonnes, the ending stocks will build to 197 million tonnes, This would be the highest level since 2002-03 and suggests that the upside in wheat is very limited. To make matters worse, the five major wheat exporters will see their wheat supplies build to 55 million tonnes from 46 million tonnes last year,

Given this bearish backdrop, how can anyone be turning friendly to wheat? It is the fact that acreage in the world is expected to drop at least one per cent in 2010, with production expected to fall back to 653 million tonnes. It is also felt that 2010-11 will be the first year we see consumption outstrip production, and as a result ending stocks should start to drop off.

However, it will not be a fast turnaround, and anyone growing wheat in 2010-11 will be doing it for the prices that the Canadian Wheat Board outlines in its pool return outlook (PRO).

However, with the world awash in lower-quality wheat, we will continue to see some premiums in the high-quality wheat areas. Also, it’s felt that farmers in other parts of the world, at some point, will be unhappy with prices and start producing other crops.

Analysts expect Canadian farmers to cut back on their wheat production in 2010, and the feeling is that farmers will be shifting into oilseeds.


There is talk in the trade that the Chinese problem with blackleg in Canadian canola will be “over” soon, as China eats through its sizeable rapeseed crop. On top of that, very positive rapeseed crush margins are causing pressure to appear in the Chinese market to remove the blackleg rule.

Talk is we could see China back in the Canadian market by March at the latest. Of course, the rumours have been floating about China’s return to the Canadian canola market since the fall, but this time there seems to be greater confidence that by the time of the Canola Council of Canada’s convention in March, deals will be signed.

However, I am not convinced that the return of the Chinese to the market would have a bullish long-range impact, as the global oilseed markets will be facing record soybean supplies out of South America at that time.

The Chinese would have to buy unusually large quantities to prompt a long-term sustained canola rally and right now, everything says the world is facing large soybean supplies and weaker prices by the spring.

In the short term, though, farmers should watch for reasonable basis levels as the best way to take advantage of the return of China to the canola market.

Current new-crop canola bids are generally below the $9 per bushel level and there’s a feeling in the trade that farmers won’t seed canola if prices are so low. However, others feel bids at the $9-$9.50/bu. level will attract in the extra acres the trade is hoping for.

Farmers I have recently spoken to all feel they need $10/bu. to reward them for keeping or expanding canola acres. The current poor bids from companies are being described as “trial balloons” being floated to see if they can get farmers to seed. This tug-of-war between companies and farmers should prove very interesting.

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