While it was unreasonable to think grain prices would continue to rise indefinitely, the abrupt market correction is disconcerting. Old crop stocks are low on most farms, so the real pain comes in new crop values.
Canola is the most notable. Seeing futures prices surpass $1,100 a tonne was surreal. So was the drop back to below $900. Back in early May, new crop prices of around $23 to $24 per bushel could be locked in for delivery to crushing plants. Although it fluctuates each day, recent values have been in the $18 range.
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Historically, that’s still an amazing price, but it’s a far cry from what was available just a few months ago. After last year’s crop contracting shortfalls and expensive buyouts, many producers used options contracts and that’s now looking like a good decision. Even after the premium cost, returns in many cases will be superior to what the market is now indicating.
A surprising number of producers have a policy of not pricing anything until it’s safely in the bin. It isn’t a logical approach and for a year like this one, it might prove costly.
In addition to options contracts, which take away production risk, contracts with act of God clauses were available on a wider range of commodities than ever before. This year is a prime example of how being totally unpriced can leave you vulnerable.
Commodities beyond canola show the same downward trend. Wheat and durum have seen major declines. New crop flax was as high as $30 a bu. in early May and it’s now under $28 despite an estimated 24 percent drop in Canadian flax acres.
Barley acres are also down, but yield potential is up. Back in early May, new crop barley could be contracted at most Saskatchewan locations for over $8 a bu. Now, it’s around $7.
What do weather forecasters, economists and market analysts have in common? We continue to listen to them even though they are often wrong. In the current environment, expert opinions vary widely.
This much we know. Interest rates are rising. Inflation is running rampant. Unemployment levels are at record lows and labour availability is a serious concern. Most commodities beyond grain have also turned down.
Russia’s invasion of Ukraine in February contributed to grain price escalation, but the market overreacted. On top of this, growing conditions have improved in some important regions.
Might grain prices reverse their downward trajectory and shoot higher again? Nothing is impossible and some growers are clinging to that hope, but it would likely take substantial new and as yet unforeseen market factors for that to happen.
With the benefit of hindsight, it’s always easy to see missed opportunities. It’s as much good luck as good management whenever you hit the top of any market.
No use dwelling too much on the past and what you might have done differently. Being too defensive and pricing too early in a rising market is the other side of the coin and that can also bring regrets.
The economy, domestically and internationally, has rarely been more volatile and uncertain. Economists and market analysts have rarely espoused such opposing outlooks.
Having a bit of price certainty can be a valuable asset in such an uncertain world. This doesn’t mean pricing everything or exposing yourself to a bunch of production risk, but it does mean locking in some values ahead of having the crop in the bin.
