After the jolting shocks of 2020, who knows what the world is going to throw at farmers and agriculture markets in 2021?
I took a little look at that in my last column of 2020, in the December 24 edition, which you can see here. (My editors appear to be indulging their senses of humour in using “resiliency” in the headline just a week after I wrote a column saying that was the most overused word of 202o. Well played, editors. Well played.)
But as we start the new year, it’s worth pondering what dynamics of 2020 might carry on into and maybe through 2021. What trends do we need to be following?
That’s not just an academic pursuit for farmers. With prices for most crops at multi-year highs, farmers face the torture of having to decide when to lock in remaining old crop and new crop prices. Do you cash out now, or hold on and ride this bull for a few more seconds? Or do you get active hedging your exposure, employing some of those strategies risk management types often talk about but few farmers embrace?
Some farmers will just follow a prudent marketing strategy and ignore the markets news, refusing to try to time the ag commodity markets. Others will want to be more active and play a dynamic role in the market by making pricing calls based on where they see the markets going. It’s for the latter group I’m writing this post.
So, what trends do we have to stay atop of to make good marketing decisions in 2021? I’m going to talk to some people about that this week.
But at this point, these are the main things I’m already watching:
• The crop market rally: Will it continue?
It’s already very impressive. Crops like canola and corn have gone parabolic on long-term charts and most other crops outside wheat are at highs we haven’t seen since the 2006-14 boom. How long can this be sustained? Farmers who priced early are probably looking ruefully at today’s charts. Farmers who hang on too long probably face the same ruefulness, because these sorts of soaring bulls tend to tumble to earth. It’s been an incredible rally, one that has surprised everybody. Playing this thing right is a white-knuckles, big-money game.
• The general commodities market rally: Will it continue?
The value of crops is tied closely to the value of other commodities, even though it’s an indirect connection. It’s an important part of the foundation. Ag specific supply and demand issues are what shove crop prices around ing the day-to-day and week-to-week markets, but the overall price ranges of most are profoundly influence by values in the overall commodities market. And fortunately for growers, those have mostly been red-shot for months. Just look at copper. It has surged ever higher as the world stumbles along better than expected by most people early in the COVID-19 pandemic. Speculation that the world will recover faster and more profoundly than feared have helped propel copper and other industrial commodity prices high and that’s helping most commodities. Crude oil has recovered a huge amount of value and is in a nice spot today in which many long-term oil extraction operations, like some of Canada’s oilsands players, are profitable again, at least on operating costs. Crude prices aren’t so high that they’re luring so many frackers back into the oil production racket that it’ll become glutted. It’s possible that there are months ahead of commodity market strength, which would help keep ag prices solid.
• Weather and La Nina
No one can tell what the weather’s going to be this spring, summer and fall across the Northern Hemisphere. That’s a wild card that’ll get played against us when the time comes and will obviously have a major impact. But we’re presently watching the situation across the Southern Hemisphere, and it’s a big part of the present crop market rally. A strong La Nina has hurt South American crop prospects and spooked some of the world’s buyers. How long will it continue and how deeply will it challenge southern crops? Stay tuned.
• The Pandemic
This is the biggest phenomenon most of us have lived through and where it goes and what weird directions it takes from here is foolish to guess at. However and whenever the pandemic resolves will have a huge impact upon whatever happens in crop markets and to farmers’ fate this year.
• Great rail service
Seldom do farmers get rail service that almost all would say is excellent, but that’s been the case since the pandemic struck. Competing commodities stayed off the tracks as demand for most non-food products and commodities plunged, leaving masses of room and carrying capacity for the railways to get farmers’ crops to port and to world markets. How long will that continue? How much of this great service evaporates once every other commodity and product gets back on the rails? That’s not something most farmers will want to learn soon.
Nothing has dominated Canadian ag news (other than COVID-19) in the past two years like China. It’s such a huge market, and such a substantial buyer of Canada crops these days, that whenever that new elephant rolls over, this old mouse has to race out of the way for fear of being crushed. China seemed to be crushing Canada’s canola exports for a few months, but that abated as clever traders found backdoors into the Middle Autocracy, and as markets adjusted. The pleasantest surprise of 2020 was the way China’s voracious hunger for so many products and its campaign of bullying against Australia and the U.S.-launched trade war against China have led to strong and steady demand for many Canadian crops and meat. Long may we fly under the radar of these fresh conflicts and let that Meng Wanzhou think mellow out some more. As with everything above, China is a volatile wild card that is impossible to predict.
• Western Canadian farm economy recovery
The happiest story of 2020 for Western Canadian growers was the generally good growing and harvesting conditions that allowed so many to pull in good crops and sell into a rising market, helping cover some of the losses thousands suffered in 2018 and 2019 on the Western prairies and pockets elsewhere from awful weather and storage management problems. Will we get another year of good weather and good prices? That would make thousands more financially whole and well-set to keep moving through the 2020s. That’s the sleeper story that won’t make many headlines, but it’s the underlying situation that counts more than anything else. Like always, it’s a matter of weather, crops and markets.