Both Canadian and US feed grain rations are likely to continue to be sensitive to quality and available supplies over the coming months, especially ahead of the upcoming Statistics Canada production estimates report on October 4th and the USDA production report on October 11th.
After having trended higher through the summer, as the potential prairie crop size declined, WCE feed wheat futures traded within a $10.00/tonne range for the past two months. The price movement has been relatively volatile due to uncertainty including not only the size of the crop, but also crop quality. Throughout much of September poor weather conditions contributed to expectations by market participants that a large portion of the reduced wheat crop has declined to feed quality. Price gains have been further pressured by the increased availability of US corn and feed wheat from Eastern European sources.
The price spread between December 2002 WCE feed wheat minus western barley futures was within +/- $5.00 of even money until early-July, after which the spread started trending steadily downward. This widened to -$35.70 in early September before recovering somewhat to end the month at -$25.00. The lower limit of the spread between Dec feed wheat and Dec western barley futures prices may have been reached in early September. Due to poor harvest conditions, the amount of feed wheat available has increased, allowing it to compete with feed barley in livestock feed rations.
The currency adjusted spread of the December 2002 futures contracts for WCE feed wheat minus Chicago Board of Trade (CBOT) corn also traded in a fairly narrow range on either side of equal value until early July, after which the spread has shown a significant increase in volatility. The spread peaked at a $26.17/tonne premium for Dec feed wheat futures in mid-July and then bottomed out at a $8.73/tonne discount in mid-September before moving back to near even levels. The volatility in the spread demonstrates the risk of hedging feed wheat with the CBOT corn futures contract.
Western Barley Volume Up Over Year Ago Totals
Western barley pit trade during the month of September rose 20.7% to 21,475 contracts compared to 17,799 contracts in September 2001. Western barley open interest levels as of September 30, 2002 decreased only slightly at 4.1% compared to the same date one year earlier.
Canola futures pit trade during September declined 9.2% to 118,655 contracts compared to 130,691 contracts in September 2001. Crop year-to-date canola volume for 2002/03 was up 1.5% at 281,077 contracts compared to 276,857 contracts in the 2001/02 crop year. Meanwhile, open interest levels in canola futures as of September 30, 2002 were down 26.9% compared to one year ago.
Total futures volume for the month of September declined from a year ago, totaling 146,746 contracts, compared to 166,600 contracts in 2001. With the Exchange For Physicals (EFPs) included, September 2002 futures trading volume totaled 160,187 contracts. Total futures open interest levels as of September 30, 2002 were 70,762 contracts, this is 28.7% below the 99,217 contracts open on September 30, 2001.
Total futures and options pit trade combined during the month of September decreased 15.2% to total 147,216 contracts, while total futures and options open interest, for all commodities combined, was lower on the month, down 39.7%, at 76,704 contracts as of September 30, 2002.
Effective October 1, 2002 WCE's feed wheat contract deliverable grades is the following: Any unlicensed variety of red wheat of the CWRS, CWRW, CWES, CPSR, or CER class, as defined by the CGC with: -a minimum density of 352 grams per 0.5 litre of clean sample; -maximum moisture of 14.5%; -maximum dockage of 2.0%; -maximum fusarium of 2%; -maximum sprouted (total sprouted only) of 5.0%; -all other specifications to meet the primary elevator grade standards of 3CWRS established by the CGC as at August 1, 2001. This change is related to specifying a total sprouted tolerance which is less restrictive than the current CGC specification.
