While grain growers have been anxiously gazing at the horizon hoping for rain, livestock feeders have been anxiously watching feed markets, fearing an out-of-control rally in corn prices.
With rain hitting most of the Prairies in the past two weeks, western Canadian cattle and hog producers should rest easier about their ability to source feed, but it’ll likely come at a price they won’t like.
“The timing isn’t good for livestock,” said Ken Ball of P.I. Financial about the combination of falling livestock futures prices and soaring corn futures.
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“Profitability in the livestock business is going to be strained, that’s for sure.”
Western Canadian livestock usually have ample sources of feed, with a big domestic barley crop and feed wheat crops offering local supplies and mountains of U.S. corn easily able to be trucked up to Manitoba and Saskatchewan or railed into southern Alberta.
But prairie crops were being severely challenged by drought conditions and a lack of sub-soil moisture, undermining hopes for a good prairie feed grains crop.
At the same time, incredible saturation in parts of the U.S. corn belt has slashed millions of acres, and the prospects for those crops that managed to get in are much poorer than average. U.S. corn crops are so late that few are confident they can estimate what sort of production is still possible.
“Markets move on uncertainty and nervousness,” said Ball about the corn futures rally, which has seen corn surge by almost a dollar a bushel, from around US$3.50 per bushel to $4.50.
That has made corn one of the most exciting parts of the trading world, with the crop getting mentioned on investing programs and trading podcasts that usually focus on oil, equity indexes and interest rates.
Errol Anderson of Pro Market Communications said weather market rallies are hard to predict, with some traders getting extremely bullish and possibly carried away.
“Let’s see the five dollars (price per bushel of corn) first,” he said about predictions that corn prices could double from today’s levels.
However, corn could easily rally through the summer if the fears about the U.S. corn crop’s size and health are borne out.
“It really is a gamechanger compared to where we were six weeks ago,” said Anderson.
“It will pull up the entire grain complex.”
That’s good news for western Canadian farmers who have received rain and should now be most of the way toward producing a barley or feed wheat crop this summer. Prices are rising and they should have crop to sell.
It’s a less happy situation for those needing to buy feed, but at least there should be feed to buy without having to chase after the same U.S. corn that will be fought over in the Midwest.
“We’ve got a crop coming,” said Anderson.
What feeders will be paying for that feed depends on the weather and how much of today’s bullishness remains as the summer grinds on.
“It’s going to be really, really volatile,” said Anderson.
