Canada Markets

Canada Prairie Spring (CPS) production in the three Prairie Provinces has fallen from 1.214 million metric tonnes in 2008, or 6.8% of the spring wheat production, to an estimated 939,200 mt in 2012, which represents 5.1% of the spring wheat production on the Prairie Provinces last year. Many reasons exist to expand these acres in 2013.

Saskatchewan Agriculture's Crop Planning Guide 2013 clearly outlines the superior returns of CPS wheat over hard red spring production across the three soil zones, as well as a marginal benefit over durum production. Of course the Planning Guide is simply an estimate and represents a guide which producers can use to include their own individual farm costs.

As recently released, the Planning Guide suggests an average total return of approximately $47 per acre for CPS wheat above the total return for spring wheat across the three soil zones, over and above total rotational expenses. The returns used are defined as the return over total rotational expenses, which combine total expenses with summer fallow expenses. This advantage shrinks when comparing CPS returns to durum returns, with the average return for CPS being $6/ac over durum's total rotational expenses across the brown and dark brown soils. While the breakeven yield per acre for CPS is slightly higher than wheat or durum given its slightly lower expected price, the breakeven price per bushel is lower than hard red spring or durum given the crop's expected higher yield.

Another benefit of CPS is the potential for a positive outlook for CPS pricing, which trades against the Kansas City HRW contract. The attached chart indicates the spread between the December 2013 MGEX contract and the 2013 Kansas City hard red winter December contract. The current spread, at 19 1/2 cents (HRS over HRW) is narrow in relation to the mean spread of close to 29 cents and the maximum spread of 71 cents over the life of the contract. The spread is undoubtedly impacted by the adequate supplies of quality protein wheat in North America, which is pressuring the hard red spring price, as opposed to the hard red winter price which is supported by concerns of drought across the southern plains and the buoyant feed market which is consuming lower quality wheat in the ration.

Industry participants also view the increased flexibilities found with CPS as being beneficial to growers, whether production is delivered into the line system for export, into the ethanol industry in the Prairie Provinces, or delivered into the feed industry. In many cases, growing CPS is viewed as a means of generating quicker cash flow as opposed to hard red spring movement where sales are timed in accordance with off-shore demand.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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