Western Canada’s weather woes have had little impact on most grain markets so far, but analysts say more poor harvest weather would shove prices higher.
Canadian grain prices have tracked U.S. prices this season, but weather south of the border is much better.
“The commercials are not willing to write off this (canola) crop yet and they’re probably right,” said broker Ken Ball of Benson Quinn-GMS.
“Canola can take a lot of (bad) weather and still come through … but if we get into October and we’re still struggling badly, you’ll see the commercials back in the futures market buying.”
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Last week, Statistics Canada released a grain stocks report and the United States Department of Agriculture released crop production estimates. The Canadian agency’s numbers were largely in line with estimates.
But the USDA numbers – which increased the corn production forecast but reduced soybeans – were gobbled up by the markets, adding to the price-eroding effect of good U.S. harvest weather.
“It reconfirms that the corn crop is really big,” said Errol Anderson of Pro Market Communications in Calgary.
“We’re close enough to harvest that markets think these numbers are real.”
Anderson said he was not scared by the forecast of an enormous American corn crop. What impressed him was the USDA’s forecast of lower world stocks of corn, something that could allow prairie barley prices to rise.
“The world ending stocks are really coming down, even though the Americans have this record crop,” said Anderson.
“Once we get into 2005, some of these prices can start to really smarten up.”
The bad weather in Canada did affect U.S. wheat markets last week, where hard red spring wheat futures rose on news that 25 percent or more of Western Canada’s crop could be downgraded to feed.
That could push quality grain prices higher, Anderson said, but many farmers who will harvest feed wheat will suffer. Unlike barley, feed wheat is likely to be in glut.
“Feed wheat seems like a dead duck because there’s too much of it,” said Anderson.
Ball said the Canadian canola futures market has been quiet because commercial buyers are gathering all the old-crop canola they can. With no new-crop canola coming in yet, some exports could be slowed or lost.
Statistics Canada estimated an eight million tonne canola crop as of July 31, but Ball said most traders have cut their forecasts because of the bad weather.
“It’s probably anywhere from five to seven million tonnes,” said Ball.
That leaves potential for a price rally once results are better known.
“If it’s seven million tonnes we don’t have a problem, but if it’s five, we do,” said Ball.
Anderson said expectations for the South American soybean crop are also falling, providing some room for optimism.
“I know we’re going through some hard times with prices, but I’m not a confirmed bear,” said Anderson.
Reuters News Agency reported this week that agricultural analysts Agroconsult lowered its Brazilian 2004-05 soybean crop estimate to 63 million tonnes, down from 64.9 million tonnes forecast in July.
Drought and soy rust, slashed the 2003-04 crop to 49.3 million tonnes.
Yields are expected to be better than last year, but the high price of oil, the raw material for many agrochemicals such as fertilizers, has increased producers’ costs.
“We think that producers will be buying and using less (fertilizer) because of prices, which means lower yields,” Agroconsult analyst Andre Debastiane said.
