USDA report causes ripples | Cash market trading on old crop stocks
Feedgrain futures charts look ugly, but cash prices are strong.
That’s the reality facing farmers with feedgrains in store. Cash market barley prices on the Prairies are strong, despite a nearly $1 per bushel slump in corn prices.
“We just don’t see much selling,” said Greg Hagel of feedgrain broker Quality Grain in Calgary.
“I guess farmers are somewhat bullish, and I think they’re somewhat right.”
U.S. corn and wheat futures have taken a terrible beating in the past three weeks, falling sharply after a U.S. Department of Agriculture stocks report found more corn in store than any mainstream analyst expected, suggesting that demand was slumping. A USDA supply and demand report last week didn’t challenge that implication.
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However, cash market prices in the United States and Western Canada remain strong, with basis levels strengthening as the futures market weakens. That has created an unusual situation in which the futures markets are being traded according to official USDA numbers but the cash market is being traded according to farmer and commercial user assumptions about the true nature of old crop stocks.
“Even when it dropped 80 cents in two weeks, we haven’t seen a penny change in the price of cash corn in the U.S.,” said Derek Squair, manager of Agri Trend Marketing.
“Feed barley isn’t any different. Feed barley hasn’t changed a bit. It’s getting tighter.”
Hagel thinks farmers who still have barley in store will be able to sell it all the way into summer at good prices. That’s now about $6 per bushel picked up in the Calgary area, which is close to peak prices this winter of $6.10.
“It’s a little harder to get now, but the guys are hanging tough and getting it,” said Hagel.
“You make a lot of phone calls and you get a lot of ‘no’s’. They’re out of barley.”
Hagel said farmers still have a lot of quality wheat in store, but won’t move it because they think prices are too low.
Many analysts think the futures sell-off has been caused by outside investment money that is following USDA numbers and factors far beyond crop market commercial realities. When the funds “decide” to bail out of commodities positions or are set up to sell on certain USDA numbers, they fire “sell” orders without caring whether the underlying commercial reality justifies those prices.
“The fund guys are trading those USDA numbers, and the fundamentalists just have to get out of the way,” said Squair.
Analyst Errol Anderson is also expecting to see firm crop prices heading to the end of seeding. However, that will probably change once the crop is in, he added.
“The market wants to see tractors in the field. Once we see tractors in the field, look out,” said Anderson, who thinks the world economy is slouching toward a recession and demand is weakening more than people believe.
As well, feed demand is weakening as cattle feeders lose money, and they might back away from the market once they’ve moved their fed cattle this spring.
“Once the feedlot cattle start to leave the pen, it’s over,” said Anderson. “The barley bids are going to drop like a stone.”
Neither Squair nor Hagel are as bearish for the summer as is Anderson, but Squair said the market could come under pressure in July if good crops appear to be developing across North America.
