Producers who face plunging prices on feed peas and other feed stocks have few good options, market watchers say.
In the past month, Winnipeg Commodity Exchange feed pea July futures, which are traded in U.S. dollars, have dropped from more than $200 per tonne to under $175 per tonne. Excellent growing conditions are pushing prices lower.
Cash prices are low, put options are difficult to sell, and many producers are looking for a way out, said Errol Anderson of ProMarket Wire, an Alberta grain market newsletter.
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“These growers are frozen at the wheel now,” he said. “They don’t know what to do.”
Anderson suggests that growers who need cash flow or bin space could sell their peas on the cash market and replace it with soymeal call options for late in the year.
The calls will allow growers to capture a rally that could occur if bad weather hits large areas.
“That may turn out to be boneheaded if the weather stays perfect because the grower will lose all his call premiums . . . but at least they have a tool where the price ceiling remains open,” Anderson said.
Feed commodity prices have been dropping because of outlooks for large new crops in the major grains, analysts say.
These outlooks have pushed new crop prices down, allowing buyers to put off purchases until fall and keeping the summer market weak, said Shaun Wildman of PCT Services.
He said October futures are only $3 more than July, which doesn’t even cover carrying costs, so “there’s an incentive for buyers to hold off on their buying unless they absolutely need to buy right now.”
Wildman said soymeal appears to have a brighter outlook than feed peas. Soymeal is mainly sold into the Asian market, and peas into the European market.
“European feed demand isn’t as strongly rising as in Asia,” Wildman said. “Couple that with an overall weakness in the feed markets and you’ve seen a dramatic drop here.”
The markets might not have bottomed out yet, Wildman added, but “I’m not panicking. I don’t think a person has to think these peas are going to fall another $1.50 or $2 per bushel because we’re likely near the lower part of the range.”
But there might be justification for slightly higher prices.
“There is potential for a substantial rally. Technically we’re oversold according to traditional trading indicators,” he said.
