WINNIPEG, MANITOBA, CANADA — The CWB on Sept. 23 released its September 2010 Pool Return Outlook (PRO) for the 2010-11 crop year. Wheat values are up between C$4 and C$30 per tonne from last month's PRO, depending on class, grade and protein level. Durum is up between C$1 and C$21 per tonne. Malting barley is unchanged and feed barley values are up C$3.

Another tumultuous month has passed and the wheat complex continues to display considerable strength. This past month, the story has been headlined by fears surrounding U.S. corn ending-stocks balance and the impact of a widespread frost on the Canadian crop. Also in the mix were the ongoing Russian export ban, Ukrainian reluctance to export, E.U. quality issues, and U.S. logistical issues. These combined to create conditions ripe for futures values to consolidate gains and appreciate.

Since the August PRO, futures values have increased in all three North American wheat futures markets. Due in large part to the ongoing quality degradation in Canada, the spread between Minneapolis spring wheat futures and both Kansas hard red winter and Chicago soft red wheat has widened. Minneapolis December futures increased by almost 50¢, Kansas December futures increased by roughly 35¢ and Chicago futures were up less than 10¢. This is the strongest reflection of the fact that the Canadian quality profile is deteriorating and that quality results in other growing areas are less than desirable. December corn futures over the same time period are up over 60¢ and now are above $5 per bushel.

Global wheat fundamentals have tightened considerably in 2010-11. World ending stocks are forecast to fall from 195 million tonnes to 175 million tonnes. The rapid escalation in corn prices and diminished quality prospects for the wheat crop should enable more wheat feeding. The end result will be that world carry-out stocks will likely end up somewhere between 160 and 170 million tonnes. Since the magnitude and direction of stocks changes are significant elements in price determination, 2010-11 ending stocks will continue to offer support to the current price situation. However, things get more ambiguous when projecting out to 2011-12. In fact, overall world supply (the combination of increased production forecasts and carry-in) is off less than 2% from the 2009-10 record of 845.5 million tonnes. Looking forward, factoring in an increase in world wheat acreage and projecting average weather conditions, it is not unreasonable to speculate that the world's wheat supply will challenge the 2009-10 all-time high.

Quality distribution is another factor that may create impetus for further wheat appreciation. A reasonable expectation is that higher quality spring wheat is going to appreciate relative to the abundant lower quality and lower protein hard red winter, spring wheat and soft wheat.

Concerns regarding U.S. corn supply heightened over the last month as corn yield prospects deteriorated. There is a real danger that the U.S. will not harvest a record corn crop and might have to make do with less than 13 billion bushels of corn production. The natural reaction of the markets, as they saw 165 bushels per acre slip to 162.5 bushels per acre, was to bid corn up. Based on the current supply-and-demand balance, the reaction was merited and there is a definite need to start rationing demand to keep ending stocks above the 40-days-of-carry-out threshold.

Quality depth is the most intriguing issue in the durum market. The frost that reduced Canadian milling wheat quality potential also contributed to declining prospects for western Canadian durum. Demand has been steady, with the reported import coverage pace well ahead of last year. Global production is forecast at 34.7 million tonnes, which is 2.7 million tonnes below last year's level. Canadian production is forecast at 3.3 million tonnes, the smallest since 2001-02. However, coupled with 2.7 million tonnes of carry-in stocks, the Canadian supply is sufficient to accommodate a 3.7-million-tonne export program. The bigger issue will be whether the quality supply will satisfy the depth of Nos. 1 and 2 CWAD demand.

Durum prices have also been influenced by developments in wheat and corn markets. The tightening of the U.S. corn supply-and-demand balance has had a dual impact. Firstly, corn futures strength has boosted wheat and durum prices. Secondly, the entire feed-grain complex has a firmer floor in place with the escalation in corn values. There is a good chance that there will be marketing opportunities both offshore and in the domestic Canadian market for feed grains, including feed durum.

With Russia currently out of the picture and Ukraine delaying grain shipments, traditional Black Sea customers have had to look to Europe and Canada to source grain. In addition, harvest results in Europe and Canada have been disappointing and world barley levels remain strong as a result.