BRANDON – Market analysts gave farmers at Manitoba Ag Days an overwhelmingly bullish price outlook for 2011.
But all three main analysts said it won’t be straight up from here.
“I think what’s gone on in the last six or eight months in terms of market action, market volatility, the inability to predict from hour to hour on some days where prices are going to go has never been so great,” said Mike Krueger of the Money Farm in Fargo, North Dakota.
“I think the future of agriculture looks pretty dog-gone good from a price perspective.”
Jon Driedger of FarmLink Marketing Solutions and David Drozd of Ag-Chieve also gave bullish 2011 forecasts, but each said they thought crop markets faced a high likelihood of a nearby correction before returning to strength.
“We could actually have a pretty good correction and not necessarily break the longer term trend line going all the way back to June,” Driedger said.
“In some ways, maybe a bit of a correction would be almost healthy.”
Krueger said major unpredictable factors are often the main drivers of price direction these days, so a simple reading of the fundamentals doesn’t help much in forecasting short-term price moves.
Speculative money, already at record levels in agricultural commodities, can drive prices far beyond what fundamentals would suggest is reasonable, Krueger said.
However, that doesn’t mean it’s not a real factor, or even the prime factor, that farmers need to understand when assessing the crop price outlook.
For instance, oat prices might seem high right now, at almost $4 in Chicago futures, but investors he met with last week see oats as still underpriced.
The same goes for natural gas.
Most fundamental analysts don’t see any real upside for the commodity, but many hedge fund investors are bullish about natural gas.
The reason: most other commodities have shot far higher than oats or natural gas, so it’s probably time to sell the winners and roll into relatively underpriced commodities.
Krueger’s longer-term bullishness is based on his analysis of corn, soybeans and wheat ending stocks.
Corn stocks are critically low, and prices could react violently if China began to buy up remaining world stocks this year.
World soybean and wheat stocks look healthy on a chart, but are tight from the perspective of a hopeful importer, Krueger said.
Most of those stocks are in China and India, and they aren’t going to export them, so world supplies are much tighter than they appear.
And don’t expect Russia to suddenly reappear with big wheat and barley crops this year, Krueger said.
“The effect of the Russian drought isn’t done yet,” he said.
He expects Russia to mostly remain outside the export markets until 2012.
That means prairie growers of durum and barley should find healthy export markets in 2011-12 if they can grow a crop, Krueger said.
