Adversity, catastrophic events helped 2012 prices go high: Analyst

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The wheat market currently belongs to buyers, but market unpredictability is never far away, says a Winnipeg-based grain market analyst.

Greg Kostal, president of Kostal Ag Consulting in Winnipeg, provided a “lay of the land” for grain and oilseed markets at a recent Farm Credit Canada event here.

Kostal said the drought in the United States winter wheat area has prompted many to think that wheat prices have to go higher. But production is poised to increase, Kostal said, adding he doesn’t know of one place in the world that wheat area is going to decrease. Because somewhere in the world wheat is always being planted and harvested, it’s quicker to respond to price corrections, he said.

Kostal pointed out 2012 was a particularly troublesome year for world crop production. “There was a lot of adversity,” he said, noting that if there’s even only half as many problems in 2013 it will help correct prices and that a “wreck” in another exporting country might be needed to drive prices higher.

Kostal said that while wheat consumption is about 80 per cent food and 20 per cent feed, lately it’s been about 25 per cent feed. He said if the U.S. corn crop recovers this year, feed wheat use will go down.

The picture will become more clear as spring approaches, Kostal said. “One of the key components for all these commodities will be this April/May time frame,” he said.

Regarding market watching in general, “There’s a lot of noise that’s out there,” Kostal said. “Out of 220 price-changing days in a year, you may only need to worry about 20 of them to actively participate.”

Outside of weather or politics, some of the larger factors affecting markets are the stagnation of growth in the biofuel industry, investors tiring of government policy around agriculture and a U.S. consumer who is feeling more positive.

Buyers are also being careful, especially China, which prefers to buy when the price is low. “They’re very cagey and selective,” he said. “They’re kind of this thermostat, regulating the environment.”

Another “hot spot” that could affect prices is India, where there’s been a lack of rain that could affect chickpeas and lentil production, though 75 per cent of their wheat crop is irrigated.

Other corn suppliers

Kostal said U.S. corn for ethanol use should decrease this year and increase next year. Feed use is also down, and corn exports will be below a billion bushels. I can’t remember the last time that happened,” Kostal said.

He noted there are now more countries exporting corn, adding Ukraine is exporting more corn. That reduces its exportable surplus of barley, which he said is relevant to Canadian barley growers.

In Argentina, production has exploded and helps dominate the market from December to July, along with Australia. Europe, Ukraine and Canada dominate the rest of the year, and if there’s a hiccup across the Atlantic there will be a good opportunity for Canada, Kostal said.

Kostal said China will take as much soybean as we can produce, describing the country as a “big sponge.” And Canada doesn’t need to drop its canola prices because of the demand in China, he said. “The demand potential is phenomenal,” he said of China’s oilseed crush capacity.

Still he said he doesn’t see how $600 per tonne can be sustained for canola, predicting China will cancel sales because prices are too high. Despite that, he said the canola supply in Canada will be tight. “We’re going to be down to fumes,” he said.

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