Wheat futures continue their sickening slide down, dragging prices to two year lows and making farmers in Western Canada – who have bigger and better crops than they expected just a few weeks ago – grimace in pain.
If you have already locked in prices through Canadian Wheat Board Producer Payment Options you’re feeling a bit better, but if you were waiting to do that you’re suffering and if you’re like most and going to rely on the pool, recent Pool Return Outlooks are disappointing and likely to become more so.
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
We have had fantastic weather across North America for salvaging the 2009 hard red spring wheat crop. At the end of August it looked like a low protein crop with a huge potential for frost damage. Now it looks like a decent protein crop with very little frost damage potential. Bins are bulging and prices are sagging.
The Allendale chart and quick comment on the Minneapolis Grain Exchange website today shows and says it all:
If you can’t read the fine print above, here’s what it says: “Spring wheat has been unsuccessful at taking out the downtrend and is now testing the recent low at $4.79.5. We feel the low is not in this market yet and that selling rallies is the way to go.”
This is the time of the traditional fall slump, so this isn’t shocking news at this time of year, but the extent of the decline is greater than many expected. Imagine what it would be like being one of the folks who has to come up with the wheat board’s PROs. You’re forced to make educated guesses combined with existing sales agreements about where overall prices are going to end up in a year and a half. When prices slide this significantly, PROs tend to slip, as they have done. Offering the PPOs becomes risky too and those folks begin drawing back. Not very fun if you’re a farmer exhausted from harvest, facing up to fertilizer bills and looking towards the winter marketing season.
A dose of semi-optimism comes from one of my favorite analysts – Jeff Kennedy of Elliott Wave International – who has been predicting both the shape and the size of this present slump, but who sees a serious rebound coming after early January. He’s a technical analyst so he doesn’t give a hoot about what fundamentals could be associated with this rally, but he’s positive it’s coming. He was mostly right about the slump of late 2008, mostly right about the size and shape of the rally to June, and right (so far) on size, shape and timing of the present slump since June. So if we’re getting anywhere near the lows, his outlook is actually pretty positive. Crappy for the next three months, but happier after New Year’s.
I’ll have a more detailed story with him in next week’s paper so I won’t go into any more detail here. (It would have been in this week’s edition but, as is wont to happen in the newspaper business, news happened and bumped it. Dratted Europeans and their flax and mustard harassment!) But as prices drift and decline and fundamental news seems worse and worse, it’s nice to see someone out there calling for a substantial rally, even if it won’t happen until 2010.
Oh yeah, by the way, for you livestock producers, he’s predicting higher livestock futures prices in the fourth quarter, which we started today, and a slumping Canadian dollar, which will just add some sweet icing to that cake. So he’s really sorta semi-bullish – in the long run.
