On one hand, the extreme volatility of recent years has everyone connected with agriculture eager to understand where commodity prices are heading. On the other hand, the multitude of factors at play and the uncertainty over events yet to unfold are making a sham of market predictions.
Analysts with access to the same information are coming out with widely divergent market predictions. One day you can read a headline about how canola is likely to see a big, short-term price drop and the next day you can find an analyst who says the sky is the limit for grain prices.
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Nitrogen price reductions are reported, but the news from Europe is sky-high natural gas prices and the closure of manufacturing plants. And China continues to limit phosphate exports. So where are fertilizer prices heading? Should a producer be buying now for next year or will that end up being a big mistake?
While fertilizer market analysts are a rarer breed than grain market soothsayers, both find it easier to report on all the factors than to boil the information into tangible conclusions. Those brave enough to make bold predictions tend to capture headlines, but the predictions do not come with money back guarantees.
Often, it’s difficult to see the forest for the trees. One can argue over the size of the Canadian canola crop, but does half a million tonnes one way or the other matter as much as all the other supply and demand factors that affect world oilseed markets?
Drought has hit Europe and China, but other regions are seeing production rebound. A lot of market analysis attention has centred around the war in Ukraine, but some analysts say the true impact on the wheat market has been overblown.
What about the world economy with factors such as currency valuation, interest rates and inflation? Those all have an impact on commodity values.
Should farmers subscribe to more market newsletters or does more analysis just add to the confusion? How much credence to you give each new headline? How many texts and emails do you get each day with grain price updates? Does analysis lead to paralysis because you just don’t know what to do?
Statistics Canada has just released Canadian crop production estimates using yield models based on satellite imagery. The estimates are new fodder for market analysis, but they’re only useful if you can put them in context.
For instance, StatsCan is pegging Canadian spring wheat production at 25.6 million tonnes, which is a whopping 57 percent increase from last year. However, it’s still smaller than the 26 million tonnes produced back in 2020. It’s the same story for many crops including flax, which is up 41 percent from last year’s serious drought, while still coming in below 2020.
An increase in production from last year’s dismal harvest is no surprise, but it’s just one piece in the overall supply and demand equation. On some crops, Canadian production is an important factor in world price determination. In other crops, not so much.
As farmers, the goal is to time grain marketing for maximum returns while buying fertilizer at the lowest price point of the year. Each year, there are varying levels of success.
In recent times, the difference in highs and lows has become much greater and marketing decisions can make or break your bottom line.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.
