Prices affected by large food supplies more than by bad weather
The Statistics Canada crop production report released last week is further confirmation that the globe’s horn of plenty is overflowing with food.
Indeed, grain traders feel comfortable that there is a deep cushion of wheat, corn and oilseeds between consumers and any fear of food shortage.
So any news that favors production causes traders to bid down grain prices.
For example, last week they bid down wheat prices on the Chicago futures exchange to a 22-year low on news of showers in the dry southern winter wheat area of the United States.
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The rain was hardly a drought-buster. It is still dry in many parts of the U.S.
But why be concerned that fall dryness will shave a few hundred million bushels off next year’s crop when all expectations are for a one billion bushel carryover into the next crop year?
We can hope they are wrong and there is some reason to think so.
We are in the second year of a La Nina event. That’s the cooling of an area of the Pacific Ocean that affects global weather.
La Nina was blamed for dryness in the U.S. last summer that shaved some bushels from average yields. And some analysts now note corn production in the second year of a La Nina is often affected even more because of depleted soil moisture reserves.
There is no way of knowing yet, but it’s something to keep in mind, particularly if weather in South America, also suffering La Nina dryness, causes a winter price rally. It could mark a good opportunity to lock in a price for part of next summer’s crop.
Some drought exists
But problems of plenty are not evident everywhere.
They are praying for rain in Iraq and Syria. The middle eastern countries face their second grim year of crop-ravaging drought.
Syria’s president Hafez Assad and Iraq’s Saddam Hussein each designated a day of prayer for rain.
Iraq’s food needs have been complicated by the international sanctions it has faced since the Gulf War. However, under the food-for-oil exemption, it has been able to buy wheat. This fall, for the first time in several years, it bought about 50,000 tonnes of Canadian wheat.
Other areas in the unusually dry Middle East – Iran, the United Arab Emirates, Turkey and Yemen – have also bought our wheat.
The latter three are rare buyers of Canadian grain. Let’s hope they acquire a taste for it.
