When Sean Gryba looks at rising crop futures prices and surging Canadian Wheat Board Pool Return Outlook prices, he feels on top of the world.
He just hopes those prices stay up long enough so he doesn’t come crashing to the ground.
“It’s a wonderful thing to see,” said Gryba, a 25-year-old Gilbert Plains, Man., farmer, as he stood atop a bin checking for heated grain.
“If it keeps up, my bank account might get into the positive.”
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Gryba owes money on land he bought so he could be a farmer, needs to buy more, and needs prices to keep up to pay for it.
Versions of that story are true across the Prairies and producers hope prices will rise high like they did a couple of years ago, but without the following crash.
“We hope it’s not a short-lived rally, not a blip like 2008,” said Keystone Agricultural Producers president Rob Brunel.
“Years like that, producers spend a lot of money on high priced inputs, then don’t get the price.”
Is this another 2008? That’s a question that some are beginning to ask because of the commodity and crop price rally that has been going on for months.
Oil is inching toward $100 per barrel, cotton prices are at record highs, canola and soybean futures are more than $13 per bushel and top grades of hard red spring wheat have PROs of more than $8 per bu.
If it is another 2008, will it be as short-lived?
And what does it mean for producer prices over the winter if 2011 has echoes of 2008?
“There are some key similarities to 2008,” said DTN market analyst Darin Newsom.
“But these markets seem to have the ability to learn.”
Newsom thinks the commodity rally is driven by the same sort of investment interest that drove it to record prices in 2008 – but not in the out-of-control way that helped cause the crash in the second half of 2008.
That means prices might not peak as high, and may rise more slowly, but they could stay high for longer.
“The rallies are being held in check because the market is taking a look at the supply and demand numbers and slowing its pace,” said Newsom.
“The market is trying to avoid a sell-off.”
The good news for crop farmers is that supply and demand fundamentals appear to support the faith that speculative money has in the crop price potential.
“We have demand that just continues to grow,” said Newsom, citing shrinking stockpiles of most crops around the world to low levels.
The most recent U.S. Department of Agriculture world supply and demand report, issued Dec. 10, did not challenge the market’s belief that some crops will be at razor-thin stocks-to-use margins by year end.
The world will only have 16 percent more corn available than it consumes, 26 percent more soybeans and 27 percent more wheat. Supply of quality, high protein wheat is much tighter.
The United States, the market that often sets the trend for world prices , has extremely low stocks levels, with only six percent more corn in stock than will likely be used, soybeans even lower at five percent, and wheat at 35 percent.
Newsom said low stocks are the most accurate measure of upward price potential for grains over the years. Combined with ever-growing demand, the potential for crop prices to rise is great.
“All these things add up to very dynamic, very volatile markets,” said Newsom.
Rich Nelson of Allendale, Inc. has a similar bullish view, seeing good fundamental support and speculative money that is not enough to cause a bubble to form and pop.
In 2008, grain supplies were tight, oil prices rose to more than $140 per barrel and there was “massive” outside investment in commodities.
“This time, we have moderate commodity interest, crude may hit $100 per barrel in coming weeks, and it’s not a runaway market,” said Nelson.
If 2011 provides a more sustained rally, or a plateau at high prices, Brunel thinks farmers across the Prairies will be relieved.
“If you’ve got nothing to sell because the weather wiped you out, this doesn’t help, but if you got a bad crop, then better prices help you, and if you got an average or good crop, this is great,” said Brunel.
