The U.S. Department of Agriculture’s March 31 seeding intentions report will help resolve a big question hanging over farmers.
Has the recent slump in crop prices been a correction in a continuing bull market or the beginning of a trend toward lower markets?
Analysts say the report, and the market response to it, will be key.
“It’s going to be watched closely,” said Jonathon Driedger of FarmLink Marketing Solutions, who was market neutral on March 28, three days before the report’s release.
Read Also
Russian pulse trouble reports denied
Russia’s pulse crop will be larger than last year, which won’t help prices rally from their doldrums.
Driedger said the recent peak, slump and stabilization of crop markets puts them on a pivot point that could tip either way.
“It’s really hard to stand here and make a firm prediction either way,” said Driedger.
But many analysts are on one side or other of the bullish versus bearish argument.
The bull side
Barclays Capital is typical of the bullish outlook for crop prices.
It has often noted low world corn stocks, tightening stocks for other crops and the overall strength in commodity markets.
Its outlook is for prices to increase, as long as demand stays strong, which still appears to be the case.
“We continue to reiterate our positive view on the grains complex,” the bank said in its March 25Commodities Weeklyfinancial newsletter.
It also released a study showing investors were not put off by the recent fall in commodity prices.
“It shows that despite difficult market conditions, historically high price levels and even after two years of exceptionally strong demand for commodity investments, enthusiasm for the asset class remains firm,” the report said.
“An overwhelming majority, 83 percent, of respondents (to the survey) plan to maintain or increase their commodity exposure over the next three years.”
The recent price slump conforms with the expectation of a correction voiced by Driedger and Ag-Chieve analyst David Drozd in January, although Driedger’s caution is based on the sharpness of the drop after the February highs.
Drozd’s views were based on the unwinding of the March futures contracts. However, he expected a return of the upward trend.
The bear side
There are few outright bears in grain markets.
The Barclays survey said grain is second on a list of 14 commodities that investors expect to do well in 2011. Few expect prices to slump.
But technical analyst Jeffrey Kennedy with Elliott Wave International sees North America’s three main crops diverging, with wheat and corn slumping and soybeans rising.
For wheat, it might be a long-lasting slump.
His view, based solely on technical analysis and chart patterns, would see nearby soybeans rise to $16 per bushel, Chicago wheat futures fall to $5.50 to $6 per bu. and corn to $6.
He isn’t sure where wheat prices go from there because of two possible readings of the charts.
“It’s either exceptionally bullish or exceptionally bearish,” he said March 16.
He expects corn to eventually rise to $8.50.
