There’s no question fundamentals have returned to the commodities markets and crops are trading on their own merits again.
That’s been both bad and good recently – good since early December and bad since Jan 12.
Last month markets became concerned about possibly tight stocks later this winter and about weather problems in South America. That sent almost all crop prices steadily higher.
But Jan. 12 the markets fell, reacting to a U.S. Department of Agriculture report that increased forecasts of year end stocks of all major North American crops.
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Good and bad, these recent events show that influences like weather and stocks count once more and the worldwide financial crisis is no longer controlling crop prices.
But regardless of the fundamental news, farmers should not expect a big rally in crop prices for some time, said Indiana market analyst Jim Bower of Bower Trading.
“Markets that have huge selloffs like we’ve had since last summer do not just heal overnight,” said Bower, who was not surprised at the depth of the market drop in the wake of the USDA reports.
“Prices go to the top of the trading range, fall back down. Go to the top of the trading range, fall back down.”
What may have developed is a trading range between the highs reached in the first 10 days of January and the lows hit in early December, he said.
Since early December the rally in most crops had been dramatic, with gains of 15 to 20 percent for canola, wheat, soybeans and corn. The gains came steadily over the month-long period.
But the futures market selloff Jan. 12 was equally dramatic, with March U.S. hard red winter wheat down 56 cents per bushel to $5.95 per bu., corn down 30 cents to $3.80 and soybeans down 70 cents to $9.66. Winnipeg canola was down $18.50 per tonne to $419.40.
That doesn’t mean the recent rally in crops is necessarily over, Bower said.
“Once those (USDA) numbers are dialed in, I think the markets have to pretty much quickly revert back to weather conditions in South America,” said Bower.
“We have a pretty wide swath of area in Argentina … which is leaning dry.”
Paul Georgy of Allendale, Inc. agreed.
“Do we get back to trading the weather in South America? Once we know the facts (from USDA reports like these), many times that’s what occurs.”
Since December, reports of dry weather in key growing regions of Argentina and other parts of South America have concerned the market about the potential of crops there. Some weather analysts believe a La Nina weather phenomenon is developing, which tends to reduce the size of southern hemisphere crops.
Those concerns have caused some commercial users of crops to become more aggressive in buying and hedging grains and oilseeds.
Also, rising prices have drawn commodity investment funds that are speculating on a potential large movement upward in crop prices.
But Georgy thinks the strength of the rally since early December means that bad news like that from the USDA can still knock the market badly.
“The problem we have this time on this report is that we’ve rallied the market sharply. We’ve got a lot of friendly news and bullishness in the market, and now we’ve got hit with this bucket of cold water,” said Georgy.
Errol Anderson of Pro Market Communications in Calgary warned that the recent dominance of weather factors could be a short-term phenomenon if unexpected financial problems reappear in the United States.
