New crop prices, represented by the December feed wheat futures contract, have also steadily declined. This is part of an overall decline in the prices of feed grains in general, as the Chicago Board of Trade (CBOT) December corn futures contract has trended lower as well. However, new crop feed wheat futures prices have experienced a steeper drop than US corn futures prices. Some of the reasons for this include a rising Canadian dollar, expectations of higher production of feed grains in Western Canada for the current growing season, and uncertainty surrounding the impact of the Bovine Spongiform Encephalopathy (BSE) situation on the Canadian beef industry. Trade sources suggest that the current cash price for domestic feed wheat relative to US corn may encourage greater use of feed wheat in livestock rations in the coming year.
The July 2003 feed wheat futures contract is the first contract to trade with the revised contract specifications, including a maximum vomitoxin level of 0.5 parts per million as the par deliverable grade. This change, along with the other changes made to the specifications of the contract, should improve basis stability and enhance the relevance of the feed wheat futures contract as a price discovery and risk management mechanism for the Canadian feed wheat market. Even though all feed grain prices are subject to many of the same market factors, basis levels are most stable when feed wheat price risk is hedged through the feed wheat futures market, as opposed to cross hedging through other feed grain futures contracts.
