Canadian Wheat Board chair Ken Ritter was hoping his market analysts were dead wrong.
But he knew two days of surging futures prices were not enough to indicate whether crop prices had finally stopped their long descent and were beginning a rally upwards.
“Boy, I sure hope so,” said Ritter in an interview a few moments after the wheat board released its first Pool Return Outlook of the 2005-06 crop year, in which it forecast even lower wheat prices than in 2004-05.
“This turnaround is certainly welcome and stunning news.”
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But market analysts said farmers shouldn’t get too hopeful or complacent. Now might be precisely the time to sell.
“This is a gift,” said independent Winnipeg analyst Brenda Tjaden Lepp.”The market is fundamentally, overwhelmingly bearish.”
Futures prices in Winnipeg and Chicago soared on Feb. 25 and 28 after news of increasing crop losses in Brazil spooked the market.
Canola futures prices surged back up to the level they held at Christmas on the Winnipeg Commodity Exchange, and gains were similar in Chicago soybeans.
Analysts said the leap in prices was sparked by the news of crop losses in Brazil, but fuelled by a rush of commodity fund speculators closing out short futures positions and switching to long positions. That doesn’t bode well for a lasting rally.
“The extent of the change is being exaggerated by the fund activity,” said wheat board market analyst Peter Watts.
“Now that (the funds) are in a long position, there’s less of a chance for that market to rise.”
Some analysts have urged producers to sell into any significant rallies that occur this winter because small, short-term rallies are all that producers can expect.
Tjaden Lepp said now is a perfect time for a producer with much of his canola crop left to sell at relatively good prices.
“Right now Ñ 20 percent (of what you have left) Ñ make a sale. I would get up to about 85 percent sold” (by this time of year).
She said farmers who don’t take advantage of the better prices fast might end up leaving a lot of money on the table. Waiting for higher prices may leave a producer receiving lower prices.
“The South American weather doesn’t justify $6.50 (US) per bushel,” said Tjaden Lepp.
“Not even close.”
Soybean crops in some of Brazil’s main growing regions are suffering from drought. Some southern areas have not had rain for a month, which leaves crops planted in the country’s gravelly soils parched and declining.
Analysts have been reducing their estimated size of the Brazilian crop, expecting to see a crop of less than 59 million tonnes, rather than the 63 million tonnes projected earlier.
Tjaden Lepp said the South American crop reductions do lower the amount of soybeans and other crops in the world, but only by a small amount. The big reaction in the markets was an opportunity.
“It’s fund activity, so it can turn around right away,” she said.
Ritter said even if prices do not continue to surge higher, having a late-winter surprise will cheer producers. Farmers are about to plant a crop and need to hear some good news.
“It’s an excellent time for markets to turn around,” said Ritter. “We need something to boost credit availability but also optimism to plant a big crop.”
