Every grain farmer is wondering when the expected grain price rally will occur.
That day appears to be receding into the future because the global economy shows no sign of a significant improvement for at least another six months.
This is not to say there won’t be price bounces that will offer selling opportunities, but a real rally might not be in the cards until the 2009-10 crop year and maybe not until late into that time frame.
The belief that grain prices should be higher than they are today rests on the fact that although global grain stocks, particularly wheat, have recovered a little, the stocks-to-use ratios are not a burden by historical standards.
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Yellow pea prices collapse on lack of demand
China’s tariffs and India’s accumulated stocks from previous imports have curbed those countries’ demand for Canada’s yellow peas just as harvest adds price pressure at the farm gate.
Also, there is evidence that many farmers around the world reduced fall-seeded acreage a little and restricted use of expensive fertilizer, meaning yield and production next year could be down from 2008.
However, every new statistic about unemployment and manufacturing slowdowns in the United States and elsewhere push equity and energy markets lower, as they did Dec. 5. The United States announced employers slashed 533,000 jobs in November, bringing the total losses to 1.91 million so far in the year. It is hard for grain markets to break free and rally against this overall market malaise.
It is the first time the U.S., Europe and Japan are all in recession at the same time since the Second World War.
Repeated interest rate reductions and bank bailouts have had little stimulatory effect so far because banks won’t lend. Governments are rolling out stimulus packages, but it will take months for the money to flow.
Slowing economic activity is sapping oil demand. In the U.S., the world’s largest oil consumer, motor gasoline demand is down almost three percent from last year at this time.
Analysts at investment bank Merrill Lynch say oil demand globally will contract by 0.5 percent next year and the world economy will grow by only 1.3 percent, the slowest rate since 1982.
The analysts say a barrel of oil could drop as low as $25 US early next year but would average $45 in the second quarter and $56 in the second half of the year.
So it is not clear if we have yet reached the bottom of this downturn. How long could it last?
Anthony Karydakis, an adjunct professor at New York University’s Stern School of Business and a contributor to CNN, recently examined this question in a piece on money.cnn.com.
In the United States, the average length of the 10 recessions since the Second World War is 10.6 months, with a range from the shortest of six months in 1980 to the longest of 16 months in 1981-82 and in 1973-74, Karydakis noted.
The U.S. has been in recession for 12 months now and, if it does not pull out until the middle of next year, it looks like it will establish a record for the post war period.
The Great Depression of the 1930s lasted 43 months.
Karydakis said there was no bank deposit insurance in the 1930s.
This insurance has today prevented the devastation to household savings that bank failures in the 1930s caused.
Also, governments today are acting aggressively to prime the economic pump. These factors should prevent a repeat of the Great Depression.
But this downturn is a long one, and will frustrate Canadian farmers for months to come.
