Values of the wheat Pool Return Outlook (PRO) were mostly unchanged in January’s PRO for most varieties of wheat. Values did increase by $1.00 per tonne for No. 1 CWRW Select 11.5 protein, were down $5.00 per tonne for CWRW and $6.00 per tonne for No. 1 CWSWS.
From December 18, through January 22, Minneapolis futures increased between $17.41 and $25.00 Cdn per tonne. Kansas futures increased between $17.19 and $17.98 Cdn per tonne. Chicago futures rose between $11.82 and $14.63 Cdn per tonne.
Basis levels were weaker over the past month. This decline has been largely offset by a decrease in risk as additional sales have been made.
The result is an increase in the FlexPro price for No. 1 CWRS 13.5, No.1 CWHW 13.5, CWES, No. 1 CWRW Select 11.5, CPS Red and CPS White that is similar to the increase in futures values over the past month. The FlexPro price for No. 1 CWSWS is up less than Chicago futures over the past month, which reflected lower-priced competition.
In recent developments in the January 12, report the USDA announced their estimate of 2009 winter wheat seeded area is 42.1 million acres, down nine per cent from this year, and dryness concerns in Argentina have provided some support to market prices.
World market factors
The Western Canadian wheat faces competition from a number of different origins. While the U.S. is an important competitor in many markets, it is not our only competitor and often it is not a relevant competitor.
When we compare relative price structures it is also important to note that a much larger proportion of U.S. wheat production is consumed domestically than is the case with Western Canadian wheat.
World wheat production will be up: the USDA estimate is 683 MT, compared to 610.8 MT in the last marketing year. Overall production increases have been skewed towards softer wheat, particularly in the E.U. and Black Sea.
Currently there are a number of external economic factors which have increased risk in the global wheat market. Ongoing uncertainty in financial markets is expected to continue to impact commodity markets and price volatility will continue to be a factor.
The U.S. futures markets have been affected by the degree of speculative participation. Speculative investment in commodities has dropped significantly from the peak early in 2008.
The U.S. futures price structure is not fully reflective of overall world wheat values. In particular, the U.S. wheat futures markets continue to exhibit a much higher degree of volatility with poor correlations to tradable flat prices in the rest of the world.
While these are the best risk management tools available for CWB use, they are an imperfect reflection of world wheat markets in aggregate.
Ocean freight rates continue to be at low levels. And while this will improve the competitiveness of Canadian wheat in some markets, it also allows competitive suppliers to expand their range of markets which will lead to increased competition world wide.
