The price outlook for the 2008-09 crop year remains obscured in part by uncertainty about the health of the wider commodity sector.
Its direction will be strongly influenced by the state of China’s economy, now the world’s fourth largest.
The developed economies of North America and Europe are stalled, but economists hope China and India can maintain their momentum and buy raw materials needed to expand their infrastructure and fuel growth.
China’s explosive growth in recent years is wide reaching and not simply based on preparations for the Olympic games, although spending on sports venues and associated infrastructure helped.
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But ironically China is now experiencing a slowdown associated with hosting the games. To reduce pollution, Beijing required factories and mines to temporarily close and ordered vehicles off the road. The U.S. Meat Export Federation says factory canteens are running at low speed, food vendors have been cleared from the streets of Beijing and the pace of activity has slowed in China as millions watch their athletes perform on television.
This reduced pork demand and supplies are building.
This is troublesome because soaring Chinese pork imports have supported North American hog prices.
Activity will likely ratchet up again once the Olympics end. But will growth resume to the frantic pace of more than 10 percent annually China saw in recent years, now that global demand for its goods is falling as the North American and European economies linger in the doldrums?
This is important to Canadian farmers because the wider markets for commodities and energy affect their grain prices. As we have seen in recent weeks, all commodities are linked in investors’ minds and falling prices for oil, metal and minerals put downward pressure on grain values.
But a Bloomberg news service story quotes Andrew Garthwaite, an economist at Credit Suisse in London, saying that China’s government has the financial resources to keep spending on infrastructure and provide incentives to its export sector.
China’s central bank also forecast strong growth in the second half of the year with domestic growth helping to make up for slow exports.
The United States Department of Agriculture Aug. 12 production report confirmed traders’ thoughts that the wet spring did not cause as much damage in the Midwest as earlier thought.
It put corn production at 12.3 billion bushels, the second largest on record.
USDA estimated 2008 U.S. soybean production at 2.973 billion bu., a little less than an average of analysts’ estimates for about three billion bu. Last year’s crop was 2.585 billion bu.
Because of a low carry-in, the total supply in 2008-09 is expected to be less than last year and stocks at the end of 2008-09 are forecast to be a tight 135 million bu.
USDA lowered its yield forecast for spring wheat and durum, reflecting dry conditions in North Dakota, Montana, Idaho and Oregon.
The national spring wheat yield was set at 36.4 bu. per acre, down from 36.8 bu. in July and 37 bu. last year. The durum yield was set at 33.5 bu., down from 34.8 last month and 33.9 bu. last year.
However, because of increased acreage it expects a spring wheat crop of 500.99 million bu., up from 479.05 last year.
The durum crop was put at 86.57 million bu., up from 71.69 bu. last year.
