A lot of people were surprised when the USDA cut the legs out from under the righteously rallying crop markets Monday.
Not Errol Anderson of Pro Market Communications in Calgary. (Nor Jeffrey Kennedy of Elliottwave International who I’ll write about in my next post.)
He had already seen what he thought was evidence that the recent rally had little steam driving it, and was expecting the setback to take prices to near the December lows we all thought were behind us.
What struck him was how easily feed barley prices in Alberta came off in the last couple of weeks. From about $180 per tonne they fell to $165-170. The cause of the sudden weakness: “Producers had waited until the new year because of taxes, then things warmed up.”
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With the new tax year born there wasn’t much reason to hold back sales. And with the weather getting lots warmer, it was actually fun to deliver grain again and get a check.
In more bullish markets, this kind of moderate extra selling wouldn’t knock prices that far, but the reaction here showed Anderson that a little bit of pressure could move the market down a bunch.
He wasn’t surprised by the dramatic market moves down following the USDA report, and his medium term expectations won’t make many grain sellers happy.
He expects crop prices to drop back to test the December lows, possibly breaking through lower. Unless big weather problems develop in South America – right now they’re medium-sized problems – the North American markets will probably just pop around down here around in a range.
Come March it’s a new ballgame, with many new factors coming into play around the world and with producers intentions in North America, but until then Anderson doesn’t expect to see a sustained rally.
