Grain prices have slipped a lot since harvest time and there seem to be no factors on the horizon to reverse the tide.
Most analysts continue to paint a bright picture for the medium-and long-term future of agriculture. There’s a rising world population, most of which is coming from developing nations, and buying power is increasing in those nations.
On the other side of the ledger, the economy of the Eurozone is a mess, American debt is unrestrained, and the stocks to use ratios for a lot of grains and oilseeds are looking more comfortable than the projections earlier in the year.
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While prices are still good for most commodities from a historical perspective, it isn’t the same rosy picture as a few months ago.
Back in early September, the January futures price for canola was in the $580 to $590 a tonne range. Now it’s around $500. In many cases, basis levels have improved so the full shock of the futures drop hasn’t hit cash prices, but it’s still a significant price slide.
Corn led the price rally, but corn is also leading the whole grain complex lower, dropping more than $1.50 a bushel since the beginning of September.
Not surprisingly, the Pool Return Outlooks from the Canadian Wheat Board continue to decline. Comparing the Aug. 25 PRO with the last one released on Nov. 24 shows No. 1 CWRS wheat with 13.5 percent protein and two-row malting barley both down by nearly 50 cents a bu.
No. 1 durum with 13.0 percent protein is down by $1.25 per bu.
After deducting average Saskatchewan freight and handling, the projected prices are $6.60 for spring wheat, $5.36 for malting barley and $8.49 for durum. Like canola, which is still close to $11 a bu. in most locations, those are still good prices. However, it’s no longer a hot and rising market.
Peas have maintained their price better than some other crops. You can still find yellow pea bids of over $8.50 a bu. Look for pea acres to be up in 2012.
On the other hand, lentils have seen disappointing performance, especially on red lentils.
While No. 1 large green lentils can be sold for around 28 cents a pound, red lentils are only in the 17 cent range.
Often among the crops with the top net return, many producers are now planning to cut their lentil acres in 2012.
Despite grain prices ratcheting down, farmer optimism remains high. Land prices and cash rents are rising. Equipment retailers report brisk business. Times are good. Decisions made in times like these can get you in trouble.
Yields and quality were both good in many regions this fall. Harvest weather was great, the crop came off dry and there’s a lot of inventory in the bin and/or in bags. Not every year is so favourable.
Maybe land prices will continue to rise and perhaps cash rents will not get cheaper in the years to come. But there’s a near certainty that at some point interest rates are going to rise. It’s a complete certainty that now and then a crop will be lost to flood, drought, hail or frost.
It’s easy to get caught up in the euphoria of profitability. We should savor the good times, because what goes up can also come down. The correction we’ve seen in grain prices is a small reality check.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.
