Crop prices are down from summer highs, but leading market analysts think the slump might be ending.
Most think the price highs won’t be repeated or exceeded this year, but some think 2013 could see a higher peak.
“I think we have a fairly firm bottom in the grain markets right now,” said David Hightower, the author of the much-read Hightower Report.
Alan Brugler of Brugler Marketing and Management in Omaha, Nebraska, thinks the traditional harvest sell-off may end early.
“I think there’s still some opportunity here for some upside. A 50 percent retracement off this recent drop is possible,” said Brugler.
“(But) it’s going to be tough to get back to the highs.”
The big three U.S. crop markets — soybeans, corn and winter wheat — are grappling with a bewildering variety of influences, including the traditional harvest market, the after-effects of a huge summer rally, global macroeconomic anxieties, a weakening commodity market and spring seeding in the southern hemisphere.
Canadian crop prices generally follow American price trends, with canola following Chicago soybeans and soy oil, spring wheat following Minneapolis wheat and barley linked to Chicago corn.
Prices often fall at harvest as farmers deliver to elevators right off the combine. That could be the cause of much of the present markets weakness, but U.S. corn and soybeans yields are also better than expected.
“Yields are coming in a little bit better than expected,” said Rich Nelson of Allendale, Inc. “That’s general. It’s everywhere.”
The record grain market rally of 2012 is likely over, Nelson said.
“Rallies based on production concerns don’t last,” he said.
“Once the market has a supply estimate out, the market usually does decline.”
Arlan Suderman of Water Street Solutions in Peoria, Illinois, thinks there’s still a chance prices will slump further this fall, regardless of recent hints of stabilization.
“If we don’t hold support levels now, just below the market, we could see another leg lower just because it’s feeding on itself,” said Suderman.
All eyes are now on demand. Prices could stabilize and prepare for recovery if the sell-off from recent high prices stimulates demand.
“I think we’re overdone on the negative demand story for both corn and soybeans,” said Hightower. “Now we’re (likely) to see the Chinese come back in.”
It’s not just Chinese buying that could drive prices higher. Many analysts say today’s prices, while high from an historial viewpoint, are not discouraging demand, especially for soybean and wheat. Soybean crush margins are still good, export demand is strong and governments in many countries are worried about running short of bread.
That’s why Suderman, regardless of his short-term caution, is bullish about soybeans and thinks new highs are possible, although more likely in 2013.
“For soybeans, I still believe we’re going to go to new highs,” said Suderman.
“When I look at supply and de-mand, and $17 soybeans did not slow demand, and I look at the global situation, I still believe there is a strong push and we are going to see a strong rebound as we get closer and deeper into the new (calendar and crop) years and test the highs and maybe go to new highs.”
Many bullish analysts predicted $19 per bushel soybeans during the peak of the summer rally, and they’re still doing so. Wheat is also attracting bullish interest.
Corn is the laggard, with few predicting it will lead the market up the way it did in midsummer. It is not a food product like wheat and is not a protein product like soybeans. It is mostly an animal feed, and many investors don’t panic about short supplies of pig and cattle feed. As well, demand disappears when prices go high.
“Corn demand is horrible,” said Nelson.
Suderman noted speculative funds showed little interest in corn during the summer rally despite razor-thin stocks, but have continuing interest in wheat.
“The funds never did buy into the bullish story with corn,” said Suderman. “Wheat can have a much weaker story than corn, and they’ll jump right on the bandwagon as long as they have some headlines to support that. Wheat fundamentals are weaker than corn, but that’s not the perception.”
Many analysts are now cautiously optimistic about prices, although few expect more than stabilization and some price recovery this year. However, 2013 could get interesting if today’s lower prices drive demand.
“(For new highs,) you’d have to have a big use response to this big drop in prices, thereby saying we didn’t do enough rationing,” said Brugler.
“We have tight (supply and demand fundamentals). You have to surprise, making them even tighter, or you have to have a problem with next year’s crop.”
That’s why the focus is now on demand and South American weather.