Prairie farmers see hope in higher wheat prices

The surging price of wheat could provide a boost for Canadian Prairie farmers facing losses because of recent flooding - but only for those who were able to get a crop in the ground.

Wheat prices are up by about a third in the past six weeks, thanks mainly to prospects for a poor crop from Russia, other parts of Europe, and Western Canada.

"A severe drought and very hot temperatures are no doubt going to take quite a toll on spring wheat production across Russia," said Patricia Mohr, commodity market specialist at Bank of Nova Scotia.

"The weather hasn't been particularly conducive in the European Union either for wheat. Combined with the lower plantings in Western Canada and poor crops due to the excessive rain, it is going to tighten up world supply-demand conditions and boost prices."

World grain prices could move considerably higher, Ms. Mohr said, and that will help Prairie farmers who can produce a reasonable crop, or who have wheat stored in bins that is ready for market.

She said one indication that grain prices are poised for a further rise is the level of short positions held by traders in Chicago. "They had massive short positions in wheat, but they are starting to cut those short positions hugely. It is turning around."

While higher prices are "a bit of a help" to waterlogged Prairie farmers, she said, they will not offset the losses many of them will take as a result of not being able to plant or harvest a crop.

About 20 per cent of Prairie farmland was not seeded this year because of the wet conditions, according to the Canadian Wheat Board.

Dina Cover, an economist at Toronto-Dominion Bank, released a report yesterday that said the combination of stronger wheat prices, government support and crop insurance will help mitigate the blow to the Western economy that the flooding has caused.

Still, she said Saskatchewan - hardest hit by the floods - will see its real gross domestic product trimmed by 1.1 percentage points in 2010 because of the flooding.

For individual farmers who have managed to sow their crops, the key factor will be whether the land is dry enough to harvest what they have planted. "It depends what comes out, and the quality of it too," she said. "A lot of the acres that were seeded still got tons of water."

Ms. Cover noted that the last two years have seen bumper crops in wheat, and as a result global wheat supplies are at high levels. This could put a damper on significant further price increases, she said.

Wheat prices - currently at about $5.82 (U.S.) a bushel for the September contract - are still well below where they were early in 2008, when they surpassed $10. Low stockpiles and investor speculation fuelled the run-up to that level, but the bubble burst during the recession and prices plunged as low as $4.50 in June of this year.

Jeff Simpson, vice-president of the Agricultural Producers Association of Saskatchewan, said the key factor that will determine if many growers get a benefit from the jump in wheat prices is the timing of Canadian Wheat Board sales. "If they made sales before the jump [in prices] on the majority of the tonnage, there will be little benefit. If they held off, they will capture some of the sharp increase in prices."

Mr. Simpson said he expects further increases in wheat prices, but farmers with crops in the ground will only benefit if the weather is dry enough to harvest and "put something into their bin." There are "a lot of 'ifs' still," he said.

Mr. Simpson, who grows wheat on a farm in Ruthilda, about 150 kilometres west of Saskatoon, said his operation has been lucky and has missed the recent large downpours. His crops are a little behind schedule but are in the ground and disease-free, he said. "We're just hanging on here [in hope] that we can get through."