There are lots of reasons to be bearish about crop prices.
Really, having rational expectations, you probably should be from bearish to unexcited about the prospects for 2020 crop prices.
The world has lots of crop in store today, better world crops will make that worse, the world economy isn’t exactly booming and China, India and the European Union are all being difficult.
Indeed, as economist Craig Klemmer of Farm Credit Canada noted in his presentation at Manitoba Ag Days, “you’re basically looking at break-even right now.”
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That’s a rational expectation based on reasonable assumptions.
But I suspect there’s a reason to be more bullish than Klemmer is allowing himself to be.
I look at post-2014 crop and commodity charts and I see prices trudging down in the bottom third of a trough, morosely recalling the peaks they enthusiastically scaled just a half-decade ago.
That kind of negativity has sticking power, and it has stuck in recent years.
But it can breed complacency, and that’s something analyst Jon Driedger of LeftField Commodity Research pointed out in another Manitoba Ag Days presentation.
It’s comfortable relying upon ample stocks and low prices — until it isn’t. Recently, the United Nations’ Food and Agriculture Organization flagged rising food inflation as a concern. Higher food costs hurt the billions of people who spend most of their money on food, and worry governments in the countries that are home to those people.
If food price inflation isn’t just a short-term phenomenon and carries on for a while and into local markets, “that really changes things.”
Instead of the present hand-to-mouth buying that dominates the world grain trade, with buyers assuming they’ll always be able to buy the food they need at around today’s prices, perhaps buyers will start thinking it’d be smart to lock down supplies ahead of time. That would add buying demand to a market that sees little today.
“If we’re going to see a pick-up in food inflation in a meaningful way, that starts to shift the psychology,” said Driedger.
Will a food price spike drive crop prices higher this year? It’s way too early to tell.
But I’m confident believing that at some point something will spark a rally that breaks us out of these low crop prices. And I’m confident that we won’t see it coming.
Any of you who have followed my blatherings over the years know that I believe in long-term commodity cycles, and that I believe we are now in the first half of a 15 to 20 year downtrend.
But I also believe that within those downtrends there can be violent rallies, as in 1996. That’s a time for farmers to make up lots of lost ground, if they act with alacrity.
Something like that’s going to come along in this dreary era we’re living through.
Could it be this year?
Perhaps. Klemmer has offered us rational reasons to be skeptical of much bullishness.
But Driedger has offered us a suggestion of how we might be surprised by how quickly things can shift in the right circumstances.
In the end, it’s right to be cautious and careful in a year that doesn’t have many reasons to offer farmers much.
But it’s important to remember that the market gods occasionally offer gifts, and you just need to keep faith until they shower some down.
