Jan. 19 — Canadian grain futures markets are quiet today for Martin Luther King Jr. Day in the U.S. Canola closed up $3 per tonne, and barley closed down $2.80 per tonne.
With this being a quiet day I thought I would do an update on where wheat prices are right now and also take a look at pr- pricing of wheat for next year on a Canadian Wheat Board basis contract.
Current world stocks are more than adequate and wheat futures have been struggling the past several months due to limited export buying interest. The only real upward strength has come from the soybean futures, pulling wheat along with it anytime it rallies.
If you did lock in any old-crop basis contracts through the CWB before the end of October I would suggest you should be watching the markets closely and developing a pricing strategy soon.
You may also want to start considering pricing some new-crop futures as well.
Here are some comparisons to help you better understand where markets are right now.
For these comparisons I will give you a final net price delivered to Vancouver, which is what the pool return outlook (PRO) is, so that everything compares equally.
To calculate your net in-pocket return, you need to deduct the rail freight and elevator elevation and handling charges for the facility you deliver to.
CURRENT CROP YEAR
The PRO for CWRS No. 1, 13.5 per cent, is $307 per tonne, in store Vancouver. Current Minneapolis July futures are trading at C$299.59 per tonne.
If you locked in a July basis for the current crop year you would deduct that from the above futures value to give you your in-store Vancouver price.
For demo purposes we will assume you locked in a basis of -$10 per tonne.
So you would net $289.59 per tonne. This is $17.41 per tonne below the PRO at this time.
The PRO for CPSR No. 1 is $258 per tonne, in store Vancouver. The current Kansas July wheat futures are trading at C$290.29 per tonne.
Assuming you locked in a -$40-per-tonne basis, you would net $250.29 per tonne, in store Vancouver, which is $7.71 per tonne below the current PRO.
Points to consider:
- The PRO can and will change between now and the end of the year.
- If the Canadian dollar stays low, the PRO may go up a bit.
- If the dollar rises or futures fall the PRO will also fall.
- Also, take into account the fact that you get your money sooner, as opposed to waiting until next December to get a final payment on pool deliveries.
- How far will weather concerns in South America pull wheat markets?
NEW CROP (2009-10) PRICING POSSIBILITIES
There is no new-crop PRO out at this time but you can lock in futures for next year.
The CWB will publish a PRO and basis levels starting Feb. 28, 2009 for next year.
Current December 2009 futures values for CWRS No. 1, 13.5 per cent, are $308.42 per tonne.
Now, you need to assume what basis value you may be able to lock in for next year.
Let’s use a -$12-per-tonne basis for demo purposes.
You would net $296.40 per tonne ($8.06 per bushel), in store Vancouver.
On CPSR, current December 2009 Kansas futures are trading at $290.29 per tonne. Assume a -$45-per-tonne basis.
You would net $245.29 per tonne ($6.67 per bushel), in store Vancouver.
Are these values at which you can make a profit? Pricing some tonnes at profitable levels is always a good risk management strategy.
Another tip to keep in mind is that with the low Canadian dollar right now, there is an advantage converting the U.S. wheat futures value from U.S. to Canadian dollars. If the Canadian dollar starts to rise, you will lose this conversion advantage unless you lock in a futures value.
If you have questions, please send me an e-mail and I will try to answer them for you.
That’s all for today. — Brian
Brian Wittal has spent over 27 years in the grain industry, including as an elevator manager and producer services representative for Alberta Wheat Pool, a regional sales manager for AgPro Grain and farm business representative for the Canadian Wheat Board, where he helped design some of the new pricing programs. He also operates his own company providing marketing and risk management advice for Prairie grain producers. Brian’s daily commentaries focus on how domestic and world market conditions affect you directly as a grain producers. He welcomes feedback and information on market conditions in your area, such as current offering prices, basis levels, trucking premiums and special crops contracts.