As we all get our Lady Gaga outfits ready for Hallowe’en trick-or-treating on Sunday night, the words of market analyst Dennis Smith will leave producers feeling both warm, and scared. That’s a pretty hallowe’eny feeling, because it’s a festival that’s both fun and frightening.
Unfortunately for most farmers, Smith’s views will not equally share out their thrills and chills, but break them apart, leaving some entirely happy, and some not so much.
“It’s my opinion the market needs to experience corn prices well above $6.00 to get the rationing job under way. A move to $7.00 is not out of the question this winter.”
That’s what Smith said in the commentary distributed by Archer Financial Services this morning. Smith is a broker there, and is one of the better-grounded broker-analysts out there.
For cereal grain farmers, and all crop farmers to some degree, these would be words of cheer, because U.S. corn sets the tone for all the cereal grain markets, and it’s the biggest indirect influence on soybeans, and therefore canola. So, from a crop growers’ perspective, let’s cheer Smith’s optimism about corn prices.
Let’s look at a chart and see how much higher they will go if corn prices hit seven bucks.
It’s got a buck to run if it’s going to reach $7, so that’d be a nice looking chart for a grain grower to look at. (By the way, have you noticed that the gap I wrote about previously was never closed? That’s a definitely bullish sign suggesting continuation of the longer term trend upwards.)
But it’s an awful chart to look at, and Smith’s an awful forecast to read, if you’re a hog producer. Corn and other feedgrains are the overwhelmingly largest component of the cost of feeding pigs, so a rise in corn prices hurts if it isn’t offset by an increase in hog prices. So let’s look at Chicago lean hogs futures:
Prices have slumped recently, but would still be profitable with the kind of corn prices we had in the spring. But since then corn prices have skyrocketed, and some analysts say U.S. producers can barely break-even with these prices. With the expensive Canadian dollar, most Canadian producers are back to losing money again.
Corn up, hogs down, bad times for hog producers again. They had a few months of profits before this recent slump, but they dearly need corn to stay flat or fall, and for hog prices to increase, if they want to build back some of the equity they lost in the downturn.
This recent crop price rally has been a blessing and a savior for grain growers across Western Canada, as the market makes up partially for the losses experienced in the field. But for the hog guys, just dragging themselves out of their recent mire, it’s been a further injury.
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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.
Earlier this week Statistics Canada reported that the Canadian sow herd fell 3.8 percent between October 1, 2009 and October 1 2010, and fell between July and now. That doesn’t suggest good times are here to stay, and those stats were compiled before the most recent surge in corn prices and fall in hog prices.
As I wrote that last sentence a skeleton walked into the downtown Winnipeg Starbucks location in which I am presently sitting, and I wonder if some evil spirit of Hallowe’en is sending grim news bearers my way. For me, I can stay relaxed because this skeleton is probably just a guy in a costume. For hog farmers, the spectre of new losses isn’t something they can just dismiss.
