You see those bovine posteriors lumbering over the horizon?
Those are the last of the bulls leaving the world’s grain and oilseed markets, abandoning farmers to the cruelties of the harvest market after a United States Department of Agriculture report on supply and demand Aug. 12.
“Once it was out, we’ve seen a lot more liquidation pressure on the markets,” said Union Securities broker Ken Ball about reaction to the report.
“It seemed to be the end of the last hopes for the weather bulls to play these markets. … It just gave no hope to the bulls, so they continue to bail out.”
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The USDA found that U.S. crops, while generally smaller than last year’s huge harvest, were about as big as most analysts had expected. With no major weather threats likely to substantially reduce U.S. supplies, buyers and sellers have shifted out of the traditional summer weather market, which tends to factor in a risk premium. They have gone to a harvest market, which tends to discount prices because many farmers will sell regardless of price.
Grain marketing adviser Errol Anderson said producers should brace for a beating if they plan to sell in the autumn and haven’t locked in any prices yet.
“Prices are going to get pounded,” said Anderson.
“The opportunities prior to Christmas aren’t great. It’s going to be congested, guys are going to be selling for cash flow, the (Canadian Wheat Board) initials are low, making the open market prices look good in Saskatchewan, which is already making the Saskatchewan price for barley fall.”
Ball said the end of the summer weather market is disappointing for Canadian farmers because it had no high points.
Unlike the U.S. markets, which had a number of thrilling price surges due to weather scares, the Canadian market moved little from its low levels.
“Our weather rallies were rather subdued,” said Ball.
“The market just keeps falling short of expectations. A lot of growers are being caught flat-footed as a result.”
Grain producers also had the disadvantage of being on the losing side of an otherwise robust commodities market. Oil and other energy prices are at record-high levels, making items like farm fuel and fertilizer more expensive, but farmers are selling their crops at depressed prices, pushing them into a cost-price squeeze.
“That’s an ugly gap to be staring at as a grower,” said Ball.
The good news is that the Prairies’ big canola crop should find many interested buyers. Prices are low enough that even China might become interested again.
“There’s a good, firm layer of bidding under the market,” said Ball.
With a likely canola carryout of 1.5 million tonnes, higher prices are unlikely to occur in the fall, which should help move the crop.
Ball said weather events in the U.S. and Canada may yet move markets, but the chance for a substantial rise is limited because the crops are so far advanced.
Anderson said commodity funds will likely drive grain and oilseed prices significantly lower than supply and demand factors would justify, because the funds jump on trends and exaggerate them. That’s simply part of the reality of grain markets and farmers should realize there will be times the exaggeration goes in the other direction.
“They provide more opportunities than you’d otherwise have, but you also get pounded more,” he said.
Canadian Wheat Board market analyst Jason Newton said a silver lining offsetting the cloudy USDA outlook is reports of high levels of fusarium in U.S. wheat crops. Canadian crops appear to be in better shape.
“If we have good quality (wheat crops) here, there should be some market we can fill,” said Newton.
