Farmers are justified in feeling bullish about the 2011 crop price outlook, if crop and commodity market analysts are anything to go by.
A wide range of world market analysts see agricultural commodities as much more likely to rise than fall in the next 12 months, and commodities in general have the potential to surge.
“A major, major concern is the La Nina weather pattern and its potential effect on southern hemisphere crops,” said the December issue of Barclays Capital’s Commodity Cross Currents newsletter.
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It said “sparks could fly” in the overall commodities market in 2011 as supplies tighten.
It also believes there is true fundamental demand for commodities and that the rally of the past year is not just built on hedge fund money.
“It would be wrong to attribute recent strength in commodities solely to financial market flows or currency market fluctuations,” the report said.
“With inventories in decline and spreads tightening, many commodity markets are showing signs that the slack built up during the steep drop in activity during (the first half of 2009) is running out.”
A similar view is held by many analysis shops at other banks and in specialty commodity investing firms.
Morgan Stanley expects world economic growth to reach almost five percent in the coming year, something that will drive demand higher for smaller stockpiles of commodities. It sees corn and soybeans, which are the baseline world cereal and vegetable oil crops, as two of the most bullish commodities overall.
However, analysts also said farmers will not see the full gains of increased world demand and rising crop prices because input prices are likely to surge as well.
For instance, the Bank of Nova Scotia expects China will announce its next five-year plan this year, which it thinks will push the country away from export reliance and create more domestic consumption.
That would cause Chinese farmers to compete with prairie farmers for fertilizer and provide underlying support for world grain prices.
“Potash and fertilizers will be in strong demand in the next five years as rising consumer incomes allow households to consume more meat, requiring fertilizer intense crops such as corn,” said a recent Scotiabank Commodity Price Index report.
Most farm focused analysis firms are overwhelmingly bullish about 2011, at least until the new crop is planted.
They see declining corn and soybean stockpiles setting up a high likelihood of significant rallies as a battle for acres takes place and weather concerns around the globe worry crop users.
Few analysts are bearish about crop prices in 2011, although Bank of America is one.
It expects “another positive year for commodity prices,” it said in a 2011 outlook, with most metal and energy commodity prices rising as world economic growth increases demand.
However, it doesn’t expect farmers to see a general continuation of the recent crop market rally.
“In contrast, agricultural commodity prices are more likely to fall in 2011,” said the bank.
