Producers holding their breath on US $ 24 spring wheat futures contracts must expire, analysts said.
“Not a chance,” said Chuck Penner, owner of LeftField Commodity Research.
This is the level that futures values reached in 2007-08, but circumstances were quite different then.
The Canadian Wheat Board was a big player at the time and it ran out of wheat.
That’s what has driven the market to sky-high levels, Penner told delegates attending the AGM conference and the Saskatchewan Crop Organization Market Outlook sessions.
He thinks a repeat of 2007-08 is unlikely.
“Looking ahead, I would say the odds of a strong recovery are not great,” Penner said.
He thinks a downtrend is much more likely from now on. Minneapolis futures already started falling late last week in response to heavy harvests from Australia and Argentina.
“It’s going to be difficult to get that momentum back strongly and it’s more than likely that we will soon start to find our place somewhere and start moving sideways,” said Penner.
Strong base levels will partially offset the fall in futures values. Base levels in the Canadian Prairies are similar to the same time last year and Penner believes they will continue to rise.
The next production news will be the winter wheat crops in the northern hemisphere.
The area seeded remained unchanged in the European Union and Russia, but increased by 2% in the United States and 9% in Ukraine.
About two-thirds of the US crop is subject to drought conditions, but the fate of this crop will not be known until March. Conditions are good in the other main producing regions.
Penner predicts a two to three percent increase in spring wheat acres in Canada. The US Department of Agriculture estimates that the land area of the United States will increase by 14 percent.
It is dry in the spring wheat growing regions of North America and producers may reduce their fertilizer use due to high costs and tight supplies.
Durum wheat prices exploded earlier this year and have since leveled off. Seasonal trends show that prices generally fall after a sharp rise, but this has not been the case this year.
This makes him believe that buyers do not have enough coverage to pursue them until the next harvest.
He expects the sideways movement to last a bit longer until the Mexican harvest in late April and early May, followed by North Africa from May to June and the EU in July and August.
In the meantime, Penner doesn’t expect another strong rally in the durum market, but there could be an occasional bump before the market eases in mid-spring. Salespeople need to be opportunistic.
There are some warning signs that North African production could be in trouble again. It is dry in Morocco and parts of Algeria and Tunisia.
Penner predicts a six to seven percent increase in durum wheat acres in Canada and an even larger increase in the United States
But he warned that could be optimistic. New crop durum wheat prices are about 110 percent higher than spring wheat prices, while old crop values are 170 percent higher.
He also noted that Canadian durum wheat yields tend to be depressed for two consecutive years when there is a drought.
That’s why Penner is aiming for a return that is five percent below the five-year average. This will offset much of the expected increase in acreage.
He believes the global supply of durum will likely remain tight in 2022-2023.
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