Crop prices are caught in the tornado of a weather market and as prices
spin higher, many farmers are holding on in anticipation of further
gains.
It’s hard to argue against that, analysts say, since prices for most
commodities are moving higher, but farmers should be aware of the risks.
“If you’re not watching, this is going to get away from you,” said Mike
Jubinville of Pro Farmer Canada.
“You’ve got to have a trailing stop under this market because if the
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scenario turns, it can go down as fast as it went up.”
In a trailing stop, a price target, or stop, is selected a few cents
below the current price. If prices continue to climb, the stop is
raised. When prices fall to the stop level, a sell-off is triggered.
Oats market analyst Randy Strychar of Statcom agreed.
“They’re going to have to be nimble because prices tend to crawl up,
but fall fast,” Strychar said.
“Prices can drop 30 cents per bushel in three days.”
Most commodities have been on a wild ride recently.
Wheat prices on the Minneapolis Grain Exchange have roared higher as
growing conditions worsen in many areas of the United States and Canada.
The U.S. corn crop has also faced dangerously hot weather during its
flowering period, which has sent corn futures prices higher. This in
turn has supported wheat and barley prices.
Canola has surged ever since spring conditions began deteriorating.
But weather markets can be fickle, Strychar and Jubinville said. They
are creatures of emotion and market sentiment can change quickly.
Strychar said producers need to understand that even if the oats prices
appear to be going inevitably higher, some voices are silent, which is
something to worry about.
“History is saying that these are good prices and you should sell
some,” Strychar said.
“There are some elements in the market that say there are problems with
the crop (which could push prices higher). The mainstream that actually
buys this production is saying this crop looks really good (which could
lower prices).”
Strychar said the recent rally in oats futures is almost entirely
driven by speculators. Commercial users are not chasing new crop oats
at today’s prices.
Strychar doesn’t blame them.
“We have no serious indication that the crop in Manitoba and eastern
Saskatchewan Ð the only places that count Ð is in any serious danger.”
With prices moving higher, it has been hard to urge producers to sell.
But if the speculators stop pushing the market, and good growing
conditions continue, the recent surge could quickly slump back.
With canola, the situation in the field is the opposite. Some of the
major growing areas are beset by drought and the size of the expected
crop keeps being reduced. Some expect a crop of only 3.5 million
tonnes, the smallest since 1990 and well down from earlier estimates of
slightly more than five million tonnes.
Canola prices have been rallying for two months. The spread between
canola and soybeans has given canola a big premium to the usual
relationship.
Statcom believes that premium could increase and that Winnipeg
Commodity Exchange canola prices “are undervalued with respect to
soyoil prices.” Volatility could continue through harvest.
But Jubinville thinks canola prices could be expanding like a bubble
and may deflate if they go too far. Canola users have already been
chased away.
“It’s done a pretty good job of rationing demand from the marketplace
and sending buyers of canola elsewhere.”
The corn crop has already been damaged by heat in the U.S., but the
American soybean crop size will be determined in August. Good
conditions could mean a much bigger crop than many expect. That would
be bad for canola prices.
“In the context of an exploding soybean supply, are we going to be able
to maintain the huge premium that canola has over beans?” Jubinville
said.
“There’s a limit.”
Producers need to watch the market and decide what minimum price they
want. If the market starts dropping, they must act fast to protect
their prices.
“You need to lay out that invisible line under the market,” Jubinville
said. “You’ve got to have some kind of a plan to sell. No plan to sell
in a weather market is a dangerous thing.”
That means producers will have to follow the markets every day.
“The producer has to be watching this market daily,” he said. “To not
do that is to be crazy.”
There are too many factors at play in the market for farmers to rely on
the idea of overall price trends steadily moving in any one direction.
No one knows where or when the market will peak, Strychar said.
“It’s an ongoing story. You have to keep reading.”
