Drought creates unhappy learning experience for markets

If Western Canada grew mostly corn and soybeans, like some of the world’s major exporters, this drought wouldn’t have major implications. But we don’t. What happens here matters to many. | File photo

For all the excitement with crop prices, and for all the dread about crop conditions, the most interesting part of the crops marketplace is going to be in the real-world markets where the stuff is actually bought, moved, processed and sold.

If Western Canada ends up with a very short crop, and it’s almost certain it will, how will people who depend upon specific crops respond?

That’s going to be a huge story over the next year, I’m assuming. For some of our crops, we are the world’s biggest or most important producer. In others, we’re major players. There’s little produced on the Prairies that doesn’t play a vital role in the world economy. If Western Canada grew mostly corn and soybeans, like some of the world’s major exporters, this drought wouldn’t have major implications. But we don’t. What happens here matters to many.

Farmers are obviously first affected and see with their own eyes how devastating weeks of dryness and heat can strangle the potential of most crops. Tens of thousands of farmers have been altering their plans and expectations for the next year as they cope with the reality of a steadily worsening crop.

It’s going to take longer for the realization of how bad things are today to fully flow out to the plethora of crop users around the world. They’ve been seeing extremely high prices for months, but the physical reality behind those prices might not become clear until enough buyers discover they’re actually having trouble sourcing crop at all, regardless of price.

That’s when fear sets in.

Growers are mostly suffering in invisible silence because there’s not much they can do about the situation. Cattle producers are in the opposite situation, scrambling to find enough grass, hay and feed to last out this summer and coming winter, or to ship calves months early and cows years prematurely.

I don’t think I’d want to be running a grain company or canola crusher this winter. Those who can get crop to move and crush will probably have paid princely sums for the Cinderella crop, while everybody will be trying to find more so they can operate at anything near an efficient level. With no stocks left, they have no cushion.

Canada plays a huge role in supplying oats to the United States for human food and high-end horse feed. What happens there if the crop is much reduced? Don’t assume it just means higher prices. Every time oats run short, horse feed manufacturers find alternative feed sources and don’t always return when crop supplies bounce back.

The malting barley market is similar to canola, with domestic processors vying with international buyers for crop. Who’s going to be more aggressive about getting their share of this year’s reduced crop?

Wheat protein spreads will tell some interesting stories about how much the world’s millers still rely upon the specific attributes of hard red spring wheat. As with horse feed manufacturers and oats, millers and bakers have responded to previous shortages of specific wheats with creativity, finding alternatives in blending, processing and product portfolios.

There are going to be many implications from this drought. The market is dynamic and adapts, but might move and adapt in ways we don’t expect.

We’re going to learn a lot about our markets in this coming year, whether or not we want to.


For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.

About the author

Markets at a glance

explore

Stories from our other publications