Big harvests, poor prices: analysts

Huge stock carryover | CWB analyst sees bright side, saying low quality grain in demand by domestic feed market

Low prices for years is the most reasonable expectation for farmers, analysts said last week at Cereals North America.

It was a dark thread that wound through a conference that contained few hopeful elements. A crop-heavy world situation has exacerbated logistics problems in Canada and the United States, and there are hints that Canada’s quality, consistency and reliability have been undermined in world markets.

“This is going to be a slog, we expect,” said AgResource president Dan Basse, who forecasted corn prices of $2.75 to $4.75 for the coming years unless a major production area suffers an “extreme drought.”

“The world lacks a bullish demand driver.”

Fellow AgResource analyst Bill Tierney said 2014-15 soybean prices will likely drop to $8.50 per bushel for March futures if South America’s crop is as big as expected.

The situation could worsen if the present soybean rally, driven by soybean meal shortages, convinces American farmers to plant an in-creased soybean acreage in spring.

“I think there’s a very strong likelihood we’re going to see soybean prices below the $7 level next year at harvest,” said Tierney.

The Prairies produce only small amounts of corn and soybeans, but those two crops set the price for cereal grains, such as wheat and oats and oilseed crops such as canola.

The grim outlook is based on huge stocks likely remaining at the end of 2014-15.

Tierney said his preliminary analysis of vegetable oil crops and vegetable oil stocks shows that world supplies are at all-time highs, with supply exceeding demand by 24 percent.

“The world’s largest exporters of soybeans and soybean meal are going to see a sharp increase in their ending stocks,” said Tierney.

From 2006-13, crop markets were driven by overall high commodity prices and biofuel-promoting government policies. More corn was required to support the ethanol and biodiesel mandates.

However, that factor has evaporated.

“Corn prices had to rally every year to buy more acres just to meet the ethanol demand that was being built up,” said Basse.

“We don’t need that extra three to seven million acres every year (any longer.)”

The Cereals North America conference also heard that Canada’s west coast ports will likely remain clogged this winter. The U.S. rail system is also becoming backed up.

Derek Sliworsky, a former CWB Asian representative who now works for a miller and food processor in Singapore, said buyers at his company told him Canadian grain was not only late because of rail problems on the Prairies, but also arrived with far less consistent quality than in the past.

He said his company, Prima Group, had to deal with problems such as soybeans mixed into wheat and variable weights of formerly uniform shipments, which at times prompted it to turn to other countries for supplies.

Canada’s quality-damaged crops were also discussed, but CWB’s Bruce Burnett was more positive about the outlook than many have been. He said not all farmers harvested bad quality spring wheat, and that feed grain supplies, while ample because of downgrading, are not burdensome.

“There is quality grain available in Western Canada on the CWRS side,” said Burnett.

Canada Western Red Spring and durum protein levels are adequate for most buyers, even if quality of much durum is low.

Much of the lowest quality wheat, durum and oats will end up in the feed market, but Burnett said there probably won’t be substantial feed grain exports from Western Canada because feed grain demand on the Prairies is good.

“We’re going to basically use most of this up,” said Burnett.

Weather analyst Scott Yuknis of Climate Impact said the world is entering a period that could cause “harsh droughts” in some areas that would last two to three years at a time.

“Once it begins, it lasts,” said Yuknis.

It would be bullish for prices, but obviously only beneficial for prairie farmers if it doesn’t hit them.

Basse said the big picture of world crop supplies and demand is that the long-term commodity bull market is over and that today is more like the 1990-2005 era.

“This will go on for a number of years,” Basse said.

About the author


Stories from our other publications