WINNIPEG – Predictions for the markets in the early months of 1994 are a pessimist’s nightmare.
Traders generally expect prices will push higher, led by canola, with other commodities tagging along.
“I wouldn’t be at all surprised to see everything go higher in the near future,” said Winnipeg Commodity Exchange floor trader Glenn Sproule.
The spread between canola and flax should narrow as much as $20 per tonne to more traditional levels of $80. Meanwhile, spreads between wheat grades will remain $10 per tonne wider than usual.
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The dollar will be key to how exports do. United Grain Growers market analyst Greg Kostal estimates that a one-percent change in the exchange rate affects barley pooled prices by about a dollar a tonne. Wheat is affected by about $1.50, and canola by a range of $2 to $4, depending on how it is valued against soybean oil.
Global oil and fat stocks could reach 10-year lows by the year end. That’s led some U.S. analysts to predict record soy oil prices. Meanwhile, the Canadian dollar hit a six-year low just before Christmas.
Convert the current price of U.S. soybean oil into Canadian dollars, and the competitive price for canola nears the heights it reached during the 1988 drought, said Kostal. Canola futures topped out that year at about $480 a tonne.
Combine the exchange rate with the impact of export subsidies on world market prices, and the stage is set for record exports of wheat and barley into the United States.
U.S. government officials are estimating imports of Canadian grain could reach four million tonnes, more than double the previous record.
“It is likely that Canada will export more than two million tonnes of wheat during the 1993-1994 marketing season,” said the U.S. agricultural attache in Canada in a report late last month. Barley exports could reach 1.5 million tonnes.
The report added that although the General Agreement on Tariffs and Trade will reduce the incentive for Canadians to export to the U.S. on one front, it makes it an even more attractive market on the other.
GATT is expected to reduce the export subsidies that are depressing world markets. But it will also reduce the transportation subsidies Canadian farmers receive to get to offshore markets.
“Thus the market in the United States will likely become even more attractive in the new GATT environment,” the report said.
