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Old crop top is likely in

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Published: June 20, 1996

Is the top in? With the recent slide in grain markets, there’s no doubt the question is an obvious, if not frequent, one.

The answer is less obvious.

While high prices have been a boon for farmers, Charlie Pearson of Grower’s Marketing Service in Winnipeg said buyers like millers and importers haven’t been able to wait out the cycle. They’ve had to keep buying.

“Buyers are starting to back off,” Pearson said. “They’ve been suffering sticker shock.”

When the demand for any commodity starts to lag at the same time new-crop supplies start coming on the market – even if the 1996 U.S. hard red winter wheat crop has been disappointing – it’s a recipe for lower prices. All of that has happened lately in American corn and wheat markets and prices are subsequently lower.

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Is the top in? Pearson thinks it’s likely for old crop and points to the Canadian Wheat Board estimates for the 1995-96 pool and forecasts for the 1996-97 pool as evidence for durum and barley, where old crop has at least a $20 per tonne advantage over new crop.

Volatile market

But the answer is not so obvious for new-crop spring wheat. Though it’s early in the season, the board is predicting the 1997 pools will surpass the 1996 ones.

With tight stocks and erratic weather giving the market a reason to be volatile, London, Ont. analyst John DePutter isn’t so sure of the board’s pool return outlook.

In fact, he’s not taking many grain market predictions as gospel until more of the 1996 crop is made.

The one thing he is sure of, however, is volatility.

“I think the market has at least one hot weather rally left,” he said.

Historical patterns indicate it could happen in late June or early July, after weather patterns often change around the summer equinox. Hot weather could interrupt the optimum planting window for U.S. soybeans and the optimum growing conditions for corn.

DePutter’s bet is December corn futures would lead that rally, leaving old-crop contracts gasping

behind.

To capture the prices, DePutter recommends farmers should keep some old-crop feed grain (barley in the West, corn in the East) and sell them at these new-crop prices.

And if you’re sold out of old crop, owning the commodities on paper with a call option is also a choice.

For wheat farmers, DePutter is tempted to sell into the 1995-96 pool where more crop is priced and payment will come faster.

Nor would either analyst rule out a strong local cash bid for non-board wheat right now.

About the author

Colleen Munro

Western Producer

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