Market analysts say farmers might have to wait until next crop year for a significant rally.
Many farmers often hang on to their grain until after harvest, knowing a rally might ignite soon after others stop dumping their grain straight from the combine.
But a price revival is unlikely this year.
“It’s very hard to be friendly on our market,” said Tony Tryhuk, the manager of trading for RBC Investments in Winnipeg.
“The demand scenario is very, very poor out there. It would be hard for us to see a sustained rally.”
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That makes it difficult for a producer to follow a crop replacement strategy – selling the physical crop at the market price now and buying options on the hopes of a rally in the future.
Calgary farm marketing adviser Errol Anderson said farmers might have to look to next year, 2005-06, if they want to use a crop replacement strategy.
“If somebody wanted to sell their canola today and replace it, we would suggest they replace it with the November 2005 price,” said Anderson.
Buying a call option on next autumn’s canola price allows room for problems in next year’s crop. Asian rust has been found in several U.S. soybean states, and that may cut the area planted next spring or reduce yields.
Late-winter and early-spring 2005 calls are much less likely than usual to produce profits because there are no fundamental reasons to be bullish.
The same holds true for feedgrains.
“There’s just simply too much feed out there,” said Anderson.
“The fact that growers are not moving feed much right now means the low in the market may not happen until next March. The longer you drag out selling, the longer it will stay down.”
Anderson said prairie farmers don’t like today’s feed prices, but U.S. corn is already starting to come into Canada to satisfy feedlot demand and as the Canadian dollar appreciates, U.S. corn gets cheaper.
Alberta Agriculture market analyst Charlie Pearson said the only hope this winter for feedgrain price jumps might be winter storms that slow deliveries.
“Between the U.S. and their monster (corn) crop and our normal-sized barley crop and the amount of feed wheat around, it’s a year of more than adequate supplies,” said Pearson.
“Lower prices is the result.”
The Canadian Wheat Board lowered its wheat and barley price forecast in its Nov. 25 Pool Return Outlook and doesn’t expect a sustained wheat rally this winter.
“It’d be difficult,” said wheat board market analyst Dwayne Lee.
“It’s the largest wheat crop ever. It’s the largest corn crop in the U.S. ever.”
Lee said high grade wheat should continue to draw good premiums, but ocean freight has been undermining wheat and barley shipments to some of the best markets.
Ocean freight rates to Asia and the Persian Gulf have increased greatly as China’s huge demand for imports uses up available shipping. Expensive freight rates put long haul shippers to Asia like Canada at a disadvantage.
Lee said Australia can ship feed barley to Saudi Arabia for $51 per tonne, compared to $62 per tonne from Canada’s West Coast.
Australia can ship wheat to China for $46 per tonne, while it costs Canada $55 per tonne.
Overall, the outlook for all grain and oilseed prices this winter is poor.
Some analysts say that while farmers should get what they can for their crops, they should remember it is often a mistake to hold grain while the interest on debt builds.
“My advice would be to take (market prices), put it in the bank and pay bills,” said Pearson.
