Outlook ‘Worrying’ For Canada’s Wheat Farmers

TORONTO, Canada -- Rain and flooding have already wiped out much of their acreage this spring and raised fears this could be one of the worst wheat harvests ever in Western Canada.

Now wheat prices are falling because farmers in Russia, Ukraine and Kazakhstan are enjoying bumper harvests and ramping up exports.

“There are a lot of things that are worrying if you isolate your thoughts on wheat,” said Neil Townsend, a grain market analyst at the Canadian Wheat Board.

Russia and Ukraine are major wheat producers but they sharply restricted exports last year after drought ruined many crops.

Those restrictions came off July 1 and both countries have started pouring grain on to world markets at discount prices in an effort to win back customers.

Russia recently signed a deal to sell 180,000 tonnes of winter wheat to Egypt reportedly at a $40 (U.S.) a tonne discount to competing grain from the European Union and the United States.

The competition could get even tougher once this year’s spring crop is harvested.

Russia’s crop is expected to jump 30 per cent to 53 million tonnes, while Ukraine’s will be up 5 per cent to 18 million tonnes.

Exports from Russia, Ukraine and Kazakhstan are expected to double to 32 million tonnes in total.

Other major wheat producers, including the U.S. and EU, are also predicting decent crops and even countries like China, India and Iran have enjoyed good harvests making them unlikely buyers.

Canada should export about 15 million tonnes.

As a result, the price of wheat on the Chicago Board of Trade has been dropping steadily and hit an 11 month low last month at $6.17 a bushel.

Canadian wheat prices could be pushed higher if the heat wave across much of the U.S. ruins some of the corn crop, Mr. Townsend said.

Corn is particularly vulnerable to hot weather now because the plants are just starting to pollinate and a lack of moisture will hurt crop yields.

“The biggest ray of hope [for Canadian wheat farmers] would be if we do see tangible yield damage to the corn crop,” Mr. Townsend said. “You hate to say that but that’s the absolute key right now.”

Any drop in the amount of corn harvested will reverberate across all grain markets, especially wheat.

That’s because wheat and corn are often interchangeable as feed for livestock.

Corn prices also tend to drive the price of other grains because it is such a massive and lucrative crop, worth far more than any other crop.

The hot weather is already having an impact on prices.

Wheat and corn gained about 7 per cent last week in Chicago.

However, by Friday wheat had fallen back on concerns about Russian selling, dropping 12.25 cents to close at $6.94.

One other hope for Canadian farmers is a mild September.

That’s critical because bad weather forced many farmers to plant their crops much later this spring, meaning harvesting will be pushed back as well.

If the weather holds, the quality of the crop will improve and more will be harvested. Better quality wheat tends to fetch a higher price.

“Right now, Russian wheat is starting to win some world tenders,” said Jerry Klassen, manager of the Winnipeg office of Switzerland-based GAP SA Grains and Products.

“But that’s not usually the tenders that Canadian wheat competes in. Russia will export about 15 to 20 million tonnes this year, but it’s usually lower quality wheat.”

The Russian spring crop is still growing and it is not clear yet how it will fare, he said.

Overall, “the influence of the Russian wheat crop will be felt stronger once we have the first frost [in Canada],” he said.

Source: Globe and Mail