As fields clear of snow, the negative mood in the crop markets is also clearing away, offering farmers a rally to entice them to plant another expensive crop.
Advisers say it’s also a chance to clear some of the large grain stocks still sitting in farmers’ bins.
“At $10 (per bushel cash price in Alberta) a flood of (canola) will hit the market,” said analyst Errol Anderson.
“I think $10 will talk, and it looks like we’ll get there.”
Many farmers have been waiting for an expected spring rally, and one may have begun. Most old crop futures prices rallied last week, taking May canola to $436 per tonne ($9.89 per bu.), up from the 2009 low set March 2 of less than $400, or about $9 per bu.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Minneapolis old crop spring wheat futures last week rose to almost $6.75 US per bu. from early March lows of less than $6, corn has risen once more above $4 per bu. from $3.50 and soybeans have roared up from about $8.40 per bu. to close to $10.
The rally also lifted new crop contracts, with November canola futures rising above $10 Cdn per bu. and soybeans reaching $9.23 US.
A spring rally appears in most years, with the most aggressive price gains seen in crops whose acreage and production prospects appear least likely to meet expected demand.
It is often described as the market “buying-in” acres to ensure adequate supply.
Crops the market is less worried about also tend to see increasing prices, but to a much lesser degree. Even crops that appear to be facing an oversupply tend to see increasing prices as the rising tide of bullish market sentiment lifts all boats.
That phenomenon has occurred this year, with the soybean surge pulling up canola, but even market laggards corn and oats are seeing small gains.
The trigger for the spring rally last week was the U.S. Department of Agriculture’s reports on stocks and prospective 2009 planting intentions.
Most analysts were surprised that soybean acreage, which had been forecast to surge, was pegged to increase only 300,000 acres to 76 million. Most analysts expected farmers to add three to four million acres of soybeans this year.
“One has to wonder if 76 million acres of soybeans will be enough,” said Kansas State University market analyst Mike Woolverton, summing up the bullish reaction to the soybean findings.
The plantings report also supported spring wheat prices. The USDA forecast a decrease of 700,000 acres in the Dakotas, Minnesota and Montana. It’s a situation that will be exacerbated by flooding this spring, especially in the Red River Valley.
Corn acreage was as expected, but the overall rally in crop markets and the powerful rally in the equity markets helped nearby corn futures rise to more than $4 per bu, a crucial price point for many U.S. Midwest farmers.
Some analysts were surprised at the USDA prediction that five million fewer acres will be seeded this year to corn, soybeans and wheat than were seeded last year, and that 7.8 million fewer acres would be seeded to all crops.
However, others said it makes sense.
“Some people are skeptical and think that that isn’t going to happen or that it will all go to (soy)beans, but my sense is that there has been a lot of marginal acreage put into production in recent years, and what made sense with high grain prices might not make sense with still-high input prices and lower grain prices,” said Austin Damiani of Frontier Futures in Minneapolis.
“At $8 or $9 a bushel for wheat, in a lot of areas you plant it in your front yard, you plant it in your back yard, you plant it in the ditch along the road. But a lot of these acres aren’t going to be a factor this year.”
Dennis Smith of Archer Financial Services said he has been expecting to see fewer seeded acres in response to slumping prices, but it was still a surprise to see evidence of this in the USDA report.
“The degree of supply destruction was vastly more pronounced and broad based than what I had expected,” he said in a commentary.
“At first I did not, could not, believe the report. However, further analysis tends to demonstrate the possible validity of the report.”
For Canadian farmers, 700,000 fewer acres of U.S. spring wheat is good news, especially in a world awash in cereal grain this year. As well, smaller-than-expected soybean acreage would be helpful for canola growers, who are sitting atop a large pile of the oilseed and are threatening to plant another big crop.
Anderson said the recent rally provided a selling opportunity, especially for canola, which has near-zero basis in parts of Alberta.
“Ten dollars will probably signal the top of a near-term trend,” said Anderson, who expects better prices in the new crop year.
