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Published January 20, 2014, 10:07 AM

Wheat, durum markets floundering

Farmers are sour on wheat and durum markets. A year ago they were selling gold; now a buyer is doing them a favor by taking it off farmers’ hands. It doesn’t take long to build up resentment. Even worse, if farmers want the money and can’t move it, they don’t get the money.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Farmers are sour on wheat and durum markets. A year ago they were selling gold; now a buyer is doing them a favor by taking it off farmers’ hands. It doesn’t take long to build up resentment. Even worse, if farmers want the money and can’t move it, they don’t get the money.

Canola is quite a bit better than wheat. At least buyers still take it. But instead of getting $14 or $15 per bushel, it’s $8.50 to $8.70.

Likely many acres will get shifted to peas, lentils and flax this spring. There aren’t a lot of new crop yellow pea prices available yet, but more were expected last week. Greens are bid $7.50 to $8 per bushel. These green prices are well under their highs, but, in the past 10 years, they’re still average. Most crops are well below.

Pea plantings were down in 2013 by a few hundred thousand acres, but plantings will probably be substantially higher this spring. The carryout is already above average, even with the lower plantings, so a bigger crop is going to make for ample supplies.

It’s easy to be gloomy about grain markets. Prices have been going down for a year and a half. Elevators are saying where your position in their lineup is. The fact is that North American, and specifically western Canadian prices for almost every commodity, are the cheapest in the world. Global prices for most commodities have been rising since August. Markets are most bearish at market bottoms.

Soybean market slow

It’s hard to find a bid for spot soybeans. New crop is $9.80 per bushel, a far cry from the $11 to $11.80 spot bids. Basis levels for soybeans are up in the $2.60 range when growers find a buyer that’s taking them.

The temptation, when you’re faced with a $2 discount on new crop, is to move soybeans.

There’s another side of the story. North American stocks are already slated to be tight this summer, plus exports keep pouring out of the U.S. The South American crop is almost certain to be a bin-buster, but getting it onto ships, as we are now finding , can be a real issue. In fact, it is a real issue. Come April, there will be lots of beans in Brazil, but not nearly so many being loaded onto vessels.

American soybean use includes 1.7 million tons of domestic crush and 1.5 million tons of exports. Each additional report of export sales cuts into that already-tight supply. Domestic use is powerful. Cattle and hogs trade at hugely profitable levels and that demand isn’t going away.

Manitoba soybeans are in a burdensome glut. Buyers don’t want them. They can’t move them east or west. Many buyers have lots of product they still haven’t moved.

USDA neutral to bearish oilseeds

The U.S. Department of Agriculture report was neutral to bearish on the oilseed complex, which will weigh heavily on canola prices long term. U.S. soybean production was increased along with minor adjustments to demand, resulting in a carryout for 2013 and 2014 at 150 million bushels, unchanged from December. World soybean ending stocks came in higher than expected and further upward tweaking of the South American soybean crops is expected in upcoming reports.

We continue to project an additional $30 to $40 per metric ton downside in Western Canadian canola prices long term. The function of the market is to encourage demand, but with limited fobbing capacity available on the West Coast and a plugged commercial elevator system, the industry will have difficulty moving the crop. The domestic crush pace continues to lag in 2012 to '13 as margins have come under pressure in past weeks.

Industry chatter suggests that crushers have their 30- to 60-day requirements covered. The market is seriously lacking demand at the current price levels.

USDA bearish wheat

The USDA report was bearish for all wheat markets. Lower feed usage in the U.S. resulted in a higher carryout, which was expected because of the lower corn prices. World wheat stocks increased by 10 million metric tons as a result of the larger crops in Canada and Australia. U.S. hard red winter wheat acreage increased by 1 million acres last year, which was bearish for new crop prices.

We are hearing of some decent values for higher protein spring wheat and higher protein durum with nearby movement available.

The Canadian market is under pressure largely from limited rail movement, and the system may resolve some of these issues when the weather turns warmer and additional Canadian wheat moves offshore through U.S. terminal ports. This may ease congestion in the commercial system, allowing delivery opportunities late in the crop year.

There is a fair amount of lower-quality milling wheat moving into feed channels. The more wheat there is that moves into local feedmills, the less wheat to move through the elevator system on rail to offshore ports.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.

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