The big three are in agreement – crop prices are due for a fall.
Executives at Cargill, James Richardson International (JRI) and Viterra all believe the record prices for oilseeds and grains will not last because a market correction is inevitable.
“I think there is a general pullback required,” JRI president Curt Vossen said after a Feb. 7 panel discussion at the Canadian Association of Agri-Retailers convention in Winnipeg.
“There is a lot of positioning in this market that has been taken up by the funds. Sooner or later the funds are going to move. When they move … the elastic band will spring back a little bit. But I’m not saying $17 wheat becomes $3 wheat. I’m saying $17 wheat might become $9 wheat.”
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Cargill Canada president Len Penner agreed, saying the industry is in a demand-pull market.
“That doesn’t fix itself very quickly …. It’s different from most other times,” Penner said during the panel discussion.
“There’s nothing to say the price will go down, back to where it was a year ago,” he added in a later interview.
Viterra chief operating officer Fran Melecha concurred.
“Today we have commodities that are three and four times higher than their historical level,” he said.
“When I look out to ’08 and ’09, we still see pricing that’s double what it has been in the past. So instead of $4 wheat, you (will get) $8-$9 wheat …. I think that’s the kind of prices that are sustainable over the next little while.”
However, Penner said the wheat market is distinct because different drivers are behind the current market situation.
“I think you have to separate wheat from the rest,” he said on the day wheat broke through the $15 barrier on the Minneapolis Grain Exchange.
“Wheat pricing today is really based on a shortage of supply, whereas the rest, the corn, beans and canola, that’s more on the demand-pull side. Wheat is going to be totally dependent on how fast production replenishes the stocks.”
As well, he said the supply side driver is not stable.
“When you have the supply shortage driving your price, it only takes that next big crop to change that.”
During the panel discussion, Penner also stressed the importance of taking advantage of the good times.
“There is no better window in time to reposition,” when prices are strong, he said.
Western Canada needs to distinguish its agricultural products from the rest of the world, he added, suggesting brand creation as one option.
“Can we develop a reputation for safe food? (Because) the world is looking for guaranteed safe food,” he said.
Vossen said rising transportation costs and a need for secure supplies may lead to an expansion of the value added industry in Western Canada.
“You’re going to see more processing, and not just canola … in milling and malting.”
As well, Vossen said he believes the takeovers and mergers in Canada’s grain trade may be over for now.
“I don’t see any great opportunities for consolidation going forward. (Consolidation) I think, is largely complete.”
