Crop price rallies few, short

Don’t expect any bull runs in grain and oilseed markets for the next year or more, but there will be opportunities to lock in profitable prices, says an analyst.

Mike Jubinville, president of Pro Farmer Canada, told Farm Credit Canada’s Ag Outlook 2016 that the commodity super cycle is over.

“We’re going into somewhat of a new era,” he said. “We are entering into a sluggish, more sideways, rangy kind of market.”

Prices will remain in a narrow range for the next one to three years unless a major production shortfall occurs somewhere in the world.

“I don’t want to get fooled into thinking when prices are starting to appreciate it’s the next bull market,” said Jubinville.

However, opportunities to lock in profitable prices will occur because there will be times when they trend up to the high end of the range for a couple of weeks or months, just as there will be similar downturns.

“We’re not going to see $14 canola, not without a production disaster, but we might have opportunities of $11,” he said.

Jubinville, who spoke Feb. 23, said the downside for canola is limited. He believes the floor price for the oilseed is $10 per bushel because farmers are not interested in selling below that level.

Growers harvested the second largest canola crop on record, but demand has been exceptionally strong from Canadian crushers and exporters.

Canola is selling for about a $36 per tonne premium to soybeans, which is lower than the typical $50 per tonne spread.

“Canola is not over-valued. Canola is competitively priced,” he said.

Jubinville believes the best pricing opportunity for canola will come during the tail end of 2015-16 from May to July, when prices could increase to the high end of the range of $11 per bu.

“We are eating through canola faster than a lot of people in the trade think,” he said.

The only wrinkle could be the recently announced shift in Chinese policy, which allows no more than one percent dockage in canola shipments. This is half of what it used to be and could lead to a decrease in exports to Canada’s top canola customer.

Jubinville had a similar sideways, range-bound outlook for wheat, although he thinks the market may soon bottom out.

The trend is still pointing down in U.S. futures markets, but offshore prices are starting to stabilize.

The basis between the Canadian cash price in Canadian dollars compared to the U.S. futures price in U.S. currency is at the highest level since Canada moved to an open market for the commodity.

“The question here is, are these basis levels something to be locking up?” he said.

Jubinville said an appreciating Canadian dollar or a rally in U.S. wheat futures markets could cause the basis to become less attractive.

However, he doesn’t see either factor happening this year, so he doesn’t feel a sense of urgency to lock in basis levels or forward price new crop wheat.

Jubinville believes that between futures prices and basis levels, growers should be able to generate a $6 to $7 per bu. price on wheat this spring or summer.

Global wheat supplies are still burdensome, he added, but steps are gradually being taken to reduce the surplus. U.S. farmers planted the smallest winter wheat crop since 1913, with the lone exception of 2010.

Yellow peas are trading near their all-time high, which makes Jubinville a little anxious.

“Only four percent of the time over the past 20 years has this market traded above $9 a bushel,” he said.

There is nothing on the horizon to suggest the price will fall soon, but history shows when the decline occurs, it will do so in a hurry.

There are once again dryness concerns with India’s rabbi or winter season crop, which bodes well for Canadian yellow pea prices. However, India’s government is intervening to move stored pulses into the market. It seems to be affecting Indian chickpea prices, which have been trending down of late.

“That has got me a little concerned,” he said.

Jubinville is 100 percent sold on old crop peas and is booking new crop at $10 per bu., which is a money-making price for the commodity.

For those intent on holding out, he believes there could be another jump in prices in summer as Indian importers restock their shelves after government policies deplete reserves.

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