WINNIPEG, Manitoba -- For wheat growers, 2007 was fabulous, 2008 was sobering and 2009 should be better. The 2008 global wheat crop had the advantages of record-high prices at seeding, an abundance of money to pay for crop inputs and great weather. Production exploded around the world. Prices collapsed.
Next year should see an improvement in wheat fundamentals. Current prices will bring traditional planting levels but there are no abnormal incentives to switch acres to wheat. Input prices have risen dramatically and, rather than being applied regardless, have become an exercise for the spreadsheet, and, in many cases, no longer pencil. In fact, for many producers, around the world, it's not a question if the input pays. Even if it does, it may be that the money simply isn't available. Third, it is unlikely that weather will be perfect for two years running.
The International Grains Council suggests that wheat production may drop from 684 million metrics tons in 2008 to 648 million in 2009. Supplies will only be down 5 percent because of the large carry-in. The end of the 2008 wheat harvest is taking place now in Australia and Argentina. Australian wheat had a great start, turned dry and is getting rained on at harvest. Production dropped from 20 million metric tons a month ago to 19 million with much of their equivalent of 1 million-metric-ton downgraded of Canadian wheat to 3 million metric tons per winter. The Argentinean crop was hurt by drought and seedings for 2009 are likely to decline. The next wheat harvest will be India-Pakistan in March, and then desert durum in April.
Desert durum production doubled this year on a doubling of acreage. It is likely to be back to traditional levels in 2009 with the steep reduction in durum prices. Seeding is taking place now.
Peas lower
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The size of the 2008 Canadian pea crop is large enough that it would have been difficult to physically move it all within the crop year. Now that buyers have hunkered down and stopped buying, it seems even more likely that we will be carrying a lot of peas over.
Steady export business still is being written by Canadian exporters but there is no discretionary buying. Purchases are either regular ongoing business or for immediate delivery. Greens are faring better than yellows. Green buyers generally are more affluent than yellow buyers so have more financial strength. Greens still command a good $1 per bushel. premium over yellows. However, as with yellows, nobody is buying on spec. There are adequate supplies of greens to satisfy demand.
Both green and yellow prices are dropping although greens had further to fall. Greens are $7 while yellows have fallen to $5.25 to $5.75 per bushel. It's conceivable that peas fall to their value as feed grain. That was the case just three year ago. If they do, then peas could have another $1 per bushel to fall.
Trade is slow as processors are generally full while farmers refuse to let peas go at these prices. Expect a pick up in farmer sales after crop production week Jan. 12 to 15.
Cash barley support
Cash barley prices are slightly firmer than last week. While most feedlot managers have covered their demand to the end of January, the market is stronger because of a lack of farmer selling because of wintry conditions. Expect another round of feedlot buying in mid to late January. Cattle on feed numbers are 8 percent above year ago levels in Alberta and Saskatche-wan. Higher on feed numbers and smaller U.S. corn imports will continue to underpin barley prices.
Chicago Board of Trade corn futures have rallied nearly $1 per bushel from the lows in early December and it appears that all the negative news or bearish fundamentals have been factored into the market. During February, the feedgrain market will often incorporate a risk premium because of the uncertainty in South American corn production. The Argentine corn crop is 90 percent seeded and estimated to finish at 18 million metric tons, down from nearly 21 million metric tons last year. Dryness during seeding and higher fertilizer costs will lower production.
USDA estimates 2008 to '09 US corn carry-out at 1.47 billion bushels, up from their earlier estimate of 1.1 billion, but down from the 2007 to '08 carry-out of 1.6 billion. Private analysts now expect lower U.S. corn acres for 2010. The carry-out for 2009 to '10 is tightening and strength in the deferred months will pull up old crop values.
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Western Canadian barley prices have potential to move higher later in winter due to strong feedlot demand. Uncertainty in South America corn production along with the potential for smaller U.S. corn acres will enhance the feedgrain price structure during this time.
Canola futures are in range trade moving into the holiday season. Basis levels remain firm because of the steady crush pace and large export programs. Cold temps have slowed farmer deliveries and rail movement to the West Coast. Seasonally, January is usually a bearish month for canola but steady demand should keep prices well supported in the short term. Speculation funds are long 8,000 bean contracts and slightly short in canola.
Now that the canola market has moved above some key moving averages, we may see the funds become main buyers in canola in the next couple weeks. Strong export demand from China and potential for speculative fund buying will be the main factors throughout January, which will cause a counter seasonal pattern.
The oilseed complex usually incorporates a risk premium in February because of uncertainty in South American soybean production. Recent rains have enhanced overall conditions but many regions were dry before seeding. This lower precipitation pattern is expected to continue in the next couple months. The 2008 to '09 U.S. soybean carry-out is estimated at 205 million bushels, very similar to the 2007 to '08 crop year. Stronger than expected exports has been driving the soybean complex. The market will be very sensitive to South American production given the tighter US soybean stocks.
Strong domestic and export demand will keep canola basis levels firm. U.S. soybean stocks are tight and the oilseed price structure may be further enhanced if adverse weather materializes in South America.
