Wittal: Financial crunch limits grain investment

Feb. 24 — Financial markets have shown some renewed life and have fought to hold onto gains today, which is a good sign as they were about to break through some long-term resistance levels if they continued to slide. The U.S. dollar fell back today, which also helped.

Crude oil jumped $1.52 per barrel to close at US$39.96.

The Canadian dollar was up over half a cent to close at US80.55 cents.

Corn was up one to four cents a bushel; beans were up two to nine cents a bushel; wheat was up four to six cents a bushel. Canola was down $4 to $5 per tonne, and barley finished down $1 per tonne for the day.

Early talk that even more acres of canola are going to be seeded than last spring’s record acres has been adding pressure to canola futures.

Lack of new export sales has also been a bearish factor holding canola futures down.

The current financial problems have limited commodities’ ability to attract investment dollars into the grain markets to provide some fluidity and action in the futures. Until this changes, prices will continue on a slow downward slope, as supply exceeds demand now for all grains.

The CWB released its first pool return outlook (PRO) and basis offerings for the 2009-10 crop year yesterday.

Grain 2009-10 PRO ($/tonne) Current 2008-09 PRO ($/T) 2009-10 basis offering ($/T)
No. 1 CWRS 13.5 $289.00 $307.00 -$14.76
No. 1 CPSR $250.00 $258.00 -$44.94
No. 1 CWAD 13.0 $303.00 $360.00 ——
Select 2-row barley $263.00 $320.00 ——

A quick comparison for wheat is that the current futures for CWRS are at $280.97 and once you deduct the basis of -$14.76 you are at $266.21, which is $23 per tonne below the new PRO.

This would suggest that you not be pricing any wheat on an FPC or BPC at this time, as returns through the pool are suggested to be better in the long term.

However, if you consider time, value of money and the fact that you receive your monies sooner when selling on an FPC or BPC rather than waiting six-plus months for a final payment from the pool account, a $23-per-tonne difference between the PRO and the FPC price would almost be considered to be even value.

Here are current values you could lock in today for these grains for fall, based on delivery to a central Saskatchewan point for comparison’s sake.

I give you these so you can do a more accurate comparison of a dollar return per acre based on your farm and your average yields for next year.

  • Wheat: FPC $266 per tonne less $58 (freight and elevation) = $208 per tonne, ($5.66 per bushel) net.
  • CPSR: FPC $226 per tonne less $58 = $168 per tonne ($4.57 per bushel), net.
  • Durum: No. 1 CWAD 13.0 FPC $261 per tonne, less $53 = $208 per tonne ($5.66 per bushel), net.
  • Feed barley: $151 per tonne Dec. futures – 24.50 per tonne basis = $126.50 per tonne ($2.75 per bushel), net.
  • Malting barley: $4.25 per bushel.
  • Oats: $2 per bushel.
  • Canola: Nov. future $427 per tonne (-$40 basis) = $387 per tonne, ($8.77 per bushel) net.
  • Flax: $11.25 per bushel.
  • Yellow edible pea: $5.00 per bushel.
  • No. 2 large green lentil: 22 cents per pound.
  • Red lentil: 22 cents per pound.
  • Canaryseed: 19 cents per pound.
  • Yellow mustard: 32 cents per pound.
  • Desi chickpeas: 17 cents per pound.
  • Rye: $4.50 per bushel.

These values change daily, so use them as a reference only for doing your calculations.

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 producer.

Brian also welcomes feedback and information on market conditions in your area, such as current offering prices, basis levels, trucking premiums and special crops contracts. Contact Brian today.

explore

Stories from our other publications