Wheat!

[TOM4CWB]

Charlie,

I agree market strategy needs to be developed around growing next years wheat crop.

Here are the fundamentals from US Wheat:

‘Production 2007/08’

• World - 601 MMT, up only 1% (7
MMT) from 2006/07 despite higher
plantings

• Exporter production diminished
by poor weather

– U.S. up 14% (7 MMT) despite freeze and
persistent rains in winter wheat regions
– Black Sea region plantings up
• Ukraine late season drought

– Canadian down: harvest off 19% (5 MMT)

– Australia suffers second year of drought:
harvest down 7 MMT from 10-year average.

– Argentina looking good


‘Top 10 Factors Affecting the
Global Wheat Market’

1. World ending stocks drop to 30 year low; export origin
holdings down 37%; stocks-to-use at historic low.

2. Import demand holds up, despite record prices. U.S.
export pace over double last year, already 79% of forecast
total.

3. Biofuel production strengthens competing crop prices.

4. Canadian production down 20%. Durum situation very
tight.
5. Australia beginning stocks low, harvest devastated by
drought.

6. EU production/quality lower on heavy rains in West,
drought in the East. Lack of intervention stocks leave
markets open to bulls.

7. Drought hits Ukraine crops, export restrictions imposed.
Export taxes implemented in Russia.

8. Morocco crop down 76%, imports double to 3 MMT. India
builds stocks, imports 3 MMT.

9. Winter wheat planting weather very good. Expect higher
acreage: initial winter plantings report out January 2008.

10.Ocean freight transportation rates at record highs and
climbing.

‘Consumption and Trade
2007/08’

• World use down 2 MMT
– Feed use down 6% (6 MMT)
- Food use up 5 MMT to 517 MMT, mainly in
developing countries

• Exports
– Up: US (7 MMT)
– Down: Canada (6 MMT), EU (4 MMT)
– Australia unchanged
– China to export 3 MMT (mostly feed quality)

• Imports
– India down to 3 MMT from 6 MMT last year
– North African imports up
‘Stocks and Price 2007/08’

• World stocks tighten

– Beginning stocks 123 MMT, lowest since
1982
– Stocks to decline 13 MMT this year, lowest
level in 31 years
– Stocks in 5 major exporters to end year
33% lower than 2006/07

• U.S. farm gate prices rise
– $5.80 to $6.40/bushel ($213-$235/MT)*
• Record high
• $4.26 ($157/MT) in 2006/07
– World export prices much stronger
*Average U.S. farm gate price, marketing year weighted
Average
‘Looking forward’

• Southern Hemisphere harvest prospects
– Argentina ideal weather
– Australia remains dry

• Export Limitations
– Ukraine/Russia/EU/Argentina/India

• Non-traditional exporters
– China/Brazil
• Sell now – buy later?

• Northern Hemisphere Plantings
– U.S. up 3% to 7% after rising 6% last year
• 5 to 8 MMT production increase
– EU ended 10% set-aside requirement
• 1.5 to 3 million hectares (12%) 7 to 15 MMT

• Price spreads
– New crop/old crop at $1.77
– Wheat/corn/sorghum/soybean (new crop)
• Spring plantings

• Northern Hemisphere Winter Weather


‘Summary’

• 2007/08 global production falls on
weather problems
– Consumption exceeds production again the world’s

• Stocks, already tight, shrink further
– World stocks-to-use ratio to historic low 17%

• Prices strengthen dramatically

• World exporters
• Exports fall: Canada, EU-27, Argentina, Black
Sea. No rebound in Australia
• U.S. exports rebound

Ocean freight rates have doubled from $45/t to $90/t on average from N.A. to primary export markets. [TRJ from graphs]

Major data source:
USDA World Agricultural Supply and Demand Estimates
October 12, 2007
http://www.uswheat.org/justReleased/doc/54DFA7EE6B76684485257376004C6063/$File/S&D071012pub.pdf?OpenElement#

[parsley]

Good Morning Tom,

Just a few notes from my sources via hotmail. I will be back in the Prairies tonight.

Feed Barley:

1. EU exporters booked 233.000 tons of export licences last week, bringing the total to almost 1,8 Mill. tons since July 1.


2. The U.S. sold 15% of its' total crop, amounting to 713.000 tons of barley for export.

3.2008 wheat production will probably push prices far down. Lots being planted EU and USA.

4.Probably seen the top of the market.

Malt Barley:

1. Malt barley markets are completely decoupled from other grain markets and will probably remain exceptionally firm.

2.Seeding intentions in Europe not bullish at all.

3.A lot of European Maltsters using low grade barleys.

4.Maltsters continue to earn big bucks.

Parsley

[TOM4CWB]

Borderbloke,

you KNOW it is going to drop.

AWB has gone down $12/t... but might not be a good indicator of CWB because:

If the Aussie crop is 11mt, then with domestic use and stocks of
6.5 mill tonnes (mt), container trade of 1/2mt and the CBH export licence for another 1/2mt, it would leave only 3.5mt for the AWB to market in 07-08.
With AWB moving to price their pool,
one would assume that the pool will become immune to any large downside price moves from here on in.

THis assumes the Australian Crop Size The USDA has lowered the estimate for our crop to 13.5mt is wrong. With the crop going backwards rapidly in NSW and Victoria, and more crop
being cut for livestock feed, it is reasonable to project that the Australian crop will be closer to 11mt.

This could very well be right because
generally Australia either grows a 20mt plus crop, or a sub 10 mt wheat crop.

THis information was gleaned from the Oct 16/07 Callum Downs newsletter. [Obviously I didn't make it up myself!]

[TOM4CWB]

Charlie,

I note the cost of a feed wheat 100% PRO is $32.50!

Should tell us a BIG story!

$187.50 - $55/t is $132.50/t.

$3.60/bu.

The CWB wants $258.69 to buy your feed wheat back;

And the CWB wants $312.20 to buy your 1CWRS 13.5 back.

A spread of $53.54/t

PRO is $299 vs $220 a 79$ spread... and the 100% EPO is 1CWRS 13.5 $25.75 vs $32.50 for feed wheat.

The lower risk for CPS is revealed in the larger amount forward sold... by the 100% EPO being only $23.25/t

[charliep]

I use the fixed price contracts as a guide to the what is likely to happen to the PRO. Their direction/magnitude of change between PRO has been a good forecast. The historical charts have not been up for a few weeks (since the last PRO) but you can can compare current to the levels prior to the last PRO.

Will also note the interesting relationship between market based changes and changes in the adjustment factor. The lower market has resulted in a reduction in adjustment factors.

Perhaps more interesting will be whether the PRO is left higher to influence the federal government in their decision around adjustment payments.

[craig]

While the Pro is supposely an indication by the board of prices it is also an opportunity to manipulate to end serve the CWB. I believe there was tremendous pressure to substantially raise the last Pro's because the sales into pools and PPO's were getting out of wack. Not enough higher priced sales into the pool would have put them at a marked disadvantage at the end of the day. That pressure is now likely off. I would suspect that we will see a return to a more normal conservative Pro. The Board was slow to react on the way up but will more quickly react on way down. Sad we have a system where we have to try and read between the lines to figure out just what is happening.

[charliep]

The historical charts have been updated.

http://www.cwb.ca/public/en/farmers/producer/historical/

Highlights.

The changes in both futures and fixed price contract point to a lower PRO. Will it happen? Good question. The change really puts into question the whole philosophy of government guaranteed initial payments. In volatile markets, where should they be set?

The daily price contract remains substantially above the fixed price contract in all wheat classes (assuming pricing activity same day. The lottery win will put more dollars in your pocket.