Analysts see CWB as cautious on wheat PROs

(Resource News International) — The Canadian Wheat Board is believed to have taken a very cautious approach in upping its pool return outlook (PRO) prices for wheat delivered by producers in the 2009-10 crop year.

The PROs for most classes of wheat were increased by the CWB by $2 per tonne from the April projection. The appreciation of the Canadian dollar was a factor that prevented the CWB from hiking its price outlook by an even greater amount.

“The CWB is always going to use the Canadian dollar as a limiting price factor, and it certainly is a real issue that needs to be taken into account, but I also tend to think that they are being a bit cautious, as all the PRO is at this point is a forecasted average for 18 months of wheat trading,” said Mike Jubinville, a market analyst with ProFarmer Canada.

The key is to know whether the current prices in the marketplace are sustainable and “I would say the CWB is arguing that they are not,” the analyst said.

The CWB’s expectation, he said, is that the prices being offered in the May 2009-10 PROs are not going to be the average for the year.

“As a result the CWB is taking a more cautious approach to upping prices despite the aggressive surge upwards in U.S. wheat futures during the past month,” Jubinville said.

“The U.S. wheat futures market has definitely been incorporating a risk premium due to the uncertainty facing wheat output,” said Jerry Klassen, a wheat trader and market analyst. “Some of the limited price increase by the CWB was related to the fact the cash market has not been following the futures to the same extent.”

The world is still looking at some very large wheat supplies and while those stocks are likely to decline in 2009-10, he said, they will still be at historically high levels.

Much of the upward price action in U.S. wheat futures has also come at the hands of commodity funds and speculative accounts, Klassen said.

On the other hand, the cash market for wheat has been stagnant, with buyers refusing to step forward for the commodity at higher prices, Klassen said.

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