Buyers are in the driver’s seat for the next while

There’s a big crop on the Prairies, but it’s the same story for many other exporters and buyers are back in the driver’s seat, says an analyst for the FarmLink market advisory service.

“It shifts our decisions when we think about when to sell and how to market that crop,” Jonathon Driedger told the All Crops Breakfast in Red Deer in early November.

“We’re dealing with a great big crop, and a great big crop results in lower prices,” said Driedger. “At least with canola, there’s a home for it, and a lot of that home is right in our own backyard.”

The demand for canola will also be partially driven by the price of other oilseeds, particularly soybeans.

“Canola isn’t an island unto itself,” he said. “We might have good demand, but we also have to keep that price competitive relative to soybeans, which are being helped by a relatively firm soybean story through the first half of the year.”

Driedger believes that canola prices will hold “relatively firm,” but high ending stocks will make it hard for the market to rally.

“We’re looking at about two million tonnes left over at the end of the year, which based on extremely strong demand isn’t necessarily debilitating in terms of prices, but it shows that even with record demand, we’re just going to have more canola around at the end of the year,” he said.

For next year, FarmLink is forecasting a record 22 million acres of canola in Canada.

“We think that the economics are just going to dictate that you guys are going to grow an awful lot of canola next year,” said Driedger. “I can be bullish on canola acres, but I don’t know if I can be bullish on canola prices.”

Wheat outlook stronger

Wheat has more of a “neutral outlook,” said Driedger. “I certainly wouldn’t describe it as bullish, but it’s not necessarily that bearish in terms of wheat prices.”

Higher global production has not offset a tight wheat market in the U.S. And while demand is good overall, the ending stocks are larger than they appear, Driedger said.

“If you look at these ending stocks for 2013-14 and you actually wrapped our carry-out on top of that and look at it from a North America perspective, suddenly it seems a little more comfortable than maybe it appears.”

Canada in particular will have a large carry-over.

“Our expectation is that we’re going to have a lot of wheat left in Western Canada,” said Driedger. “As we come into the end of spring and into summer, we think there’s going to be quite a bit of wheat left in the bins, partially because prices for wheat as we look into next year are going to be lower.”

Even with high ending stocks and lower prices, there will be some bright spots in the market.

“We do see a little bit of a better outlook for some of the higher protein, in particular, and higher grades,” he said.

Certain classes will also fare better. As the trend toward more Canada Prairie Spring (CPS), soft white spring, and winter wheat acres continues, hard red spring acres will likely take a hit, according to Driedger. “The hard red spring is probably where the biggest loss of acres will be.”

Peas unpredictable

Like wheat, peas will also likely see a supply buildup, depending on export demand.

“Last year was extremely tight, but if we look at a carry-out that gets up towards just shy of 700,000 tonnes, if India were to come in and buy upwards of 300,000 or 400,000 tonnes, it’s not unthinkable if we can get it there,” said Driedger. “That has a dramatic impact on ending stocks and what it means for prices.”

Demand for peas in India is hard to predict, however.

“India consumes about 18 million tonnes of pulses, and it grows over 14 million tonnes, so if it really wants these peas and the demand is there, the potential for India to buy more than we expect is there,” he said. “It’s a wild card and one that’s hard to forecast.”

But even though international demand for Canadian peas is strong, transportation logistics remain a challenge.

“They can want it all they want, but if we can’t actually physically get it there because logistics are strained, that’s a risk,” said Driedger.

Barley bearish

Feed barley prices have been grinding lower as a result of large supplies of other feed grains, Driedger said. “It’s hard to paint a real bullish outlook for feed barley.”

Lower livestock numbers are also impacting the price of feed grains, and it will take time to rebuild herds and feed consumption.

“Even if our cattle prices look strong and some of the outlooks for the livestock markets aren’t bad, the reality is it takes time to rebuild herds,” he said. “We don’t see a lot of reasons why we should see any kind of sharp move higher in feed barley prices.”

Driedger isn’t ruling out the possibility of the export market being a potential outlet for feed barley because of its ease of processing, but competition with the Black Sea region often poses a challenge. “Feed barley’s one of those things where, every couple of years, there’s an opportunity to step in and move a lot of it, but the math has got to work. The potential is there, but I’m not sure I would hang my hat on it.”

The upside for malt barley prices is also limited for the coming year, partially because of this year’s large, high-quality barley crop. “When the quality of the barley crop is really good, there isn’t a whole lot of incentive for buyers to give a premium for malt because they can find it anywhere.”

For the coming year, growers will need to focus on their margins and manage risk to get a good return, but it will take time to whittle supplies down.

“It just takes time to work those supplies down,” Driedger said. “There’s no quick fixes. You don’t create demand overnight.”

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