Outlook uncertain but downside risk should be managed

Prairie seeding outlook

Market outlooks for 2012-13 continue to vary wildly because of differing views about the impact of the continuing drought in the U.S. Plains and parts of the Midwest.

Some, like North Dakota State University ag economics professor Frayne Olson and Elwynn Taylor, Iowa State University extension climatologist and professor of agronomy, think the lack of soil moisture make it highly unlikely that U.S. corn yields will recover to the level predicted from the long-term rising trend.

Others, like Allendale’s chief strategist, Richard Nelson, think the current dryness won’t hurt corn yields so long as there is enough rain during the growing season. And as we reported last week, Austin Damiani of Frontier Futures and Drew Lerner of World Weather think there is a good chance the U.S. winter wheat crop will do OK despite the current dismal condition.

The U.S. National Oceanic and Atmospheric Administration’s February-April outlook expects above normal moisture in the northern and eastern parts of the corn belt but no relief in the western part. The hard red winter wheat region could receive below normal moisture in western Kansas, the top wheat producer, and in western Oklahoma and all of Texas.

But the confidence level in long-term forecasts is not strong.

Given the risk of sharply lower prices if there is normal rain in the U.S. this summer, it would be a good idea to consider using, where possible, a futures options strategy to lock in a portion of your expected crop at today’s prices and keep the potential to still benefit if the drought lingers and prices rise further.

Western Canada does not have a severe moisture deficit. Parts of Alberta, southwestern Saskatchewan and southwestern Manitoba were dry in the fall, but most areas now have a fairly good snow pack, except for southern Alberta and southwestern Manitoba.

Farmers are eagerly looking forward to seeding. Agriculture Canada last week made its predictions about what they will seed.

The department expects more area in Western Canada will be seeded to wheat and soybeans, more than offsetting reduced area of canola and lentils. Area seeded to barley and other coarse grains is expected to be fairly flat.

The forecast sees new crop prices decreasing by 10 to 20 percent from the current crop year, with oilseeds faring a little better because of the strong world demand relative to supply.

It sees canola seeded area dropping only one percent from 2012. Many private analysts have talked about a larger drop because of disease problems and disappointments with last year’s yields.

It sees lentil area falling 18.5 percent because of over supply.

Wheat area is expected to climb five percent and durum by three percent.

Ag Canada sees barley area rising five percent but oats acres dropping nine percent.