It’s a good time to take a break from chasing prices, say market watchers.
“This year, more than most I’ve seen in recent years, could be a good break for growers who have stretched their rotations to try and grow the crop they feel is most economically advantageous,” said Mike Jubinville, senior markets analyst with MarketsFarm.
“This is probably a year to get yourself back in line.”
The COVID-19 pandemic has driven grain (and especially wheat) prices higher as people from around the world bought staples like bread, pasta, and flour en masse.
“We’ve seen the international market have stronger demand with some of this uncertainty, which may suggest there are some international buyers looking to secure food supplies,” said Geoff Backman, business development and markets manager for Alberta Wheat and Alberta Barley.
“We have seen a surge of demand in the global futures market, so there could be some buyers who are looking to get their hands on a little more grain sooner rather than later.”
But “the grains and oilseed markets are starting to detach themselves from the panicked environment to some degree, Jubinville said March 27.
“We had a sugar rush of demand to refill inventories,” he said. “Our world in agriculture — at least in the delivery system for food — has shifted very much to a just-in-time delivery mechanism, as opposed to end-users maintaining significant backup inventories of these supplies.
“These just-in-time delivery mechanisms are having a hard time trying to compete when you have a real rush of consumer demand come forward in a panic environment.”
As some of the panic buying has eased, fears about supply chain logistics have eased as well, he added.
“Agriculture and the whole food distribution system is considered a high-priority essential service,” said Jubinville. “The initial concerns about getting available inputs for spring seeding in place in time has been tamped down a little bit as the assurances from the industry say they will have available resources in place.”
So grain is still moving both domestically and around the world, and is expected to keep moving despite initial concerns.
“At this point, most of the concerns that are out there are just that — concerns,” Backman said March 27.
“All of our information is that the grain export supply chain is working well, and at this point, we’re not aware of any bans on the exports of raw grains from any of the main export countries.”
Stick to seeding plans
But the stressed supply chain — combined with a weaker Canadian dollar — has given farmers a rare chance to cash in right now, said Brennan Turner, CEO of FarmLead.
“When demand increases and supply stays relatively the same, prices are going to go up,” Turner said March 27. “So this has been an opportunity from a selling standpoint on the cash markets that most farmers should probably be considering. We’re getting back to the highs we saw in mid-January, and that shouldn’t be ignored.”
But that doesn’t mean farmers should be shifting their seeding plans to chase those higher prices, he added.
“We’re probably going to see continued demand for these food staples, but there’s still a record amount of wheat out there today and there’s expected to be a record amount of wheat grown this year,” said Turner. “There’s still a lot of supply in the pipeline, so it’s not always healthy to chase today’s prices when you know that there’s a good chance they’re not going to be available by the fall.”
While economics will always be a factor in cropping plans that doesn’t make sense in a year like this one, where “it really doesn’t look like there’s a clear-cut crop winner,” said Jubinville.
“This year, the profitability on these various cropping options is not dramatically different from one to the other, so I don’t think there’s a real economic incentive to choose one crop over another,” he said.
“If we were in an environment where canola or pulses or barley was offering extraordinary price premiums relative to other cropping options, there’s obviously going to be attraction to those crops. But we don’t have that situation this year.”
Changing seeding plans now would be like “betting on uncertainty,” said Turner.
“When it comes to planting, you have to ask yourself, ‘What are the things I can control? How can I minimize my risk?’ It’s by sticking to the things I know best, but also by sticking to the things that I know I’m going to be able to make a profit on.
“There’s going to be people chasing these prices, but it’s a big bet, and probably not worth it in the long run, in my opinion.”
So in a year with plenty of uncertainty — like this one — it’s better to stick to the plan.
“There’s a lot of uncertainty in a lot of pieces here, but farmers know their operations and they should have a plan based on that,” said Backman.
Focus instead on higher productivity, the analysts said.
“If it’s getting rotations and weed control back into a semblance of order, this is probably a year where it makes sense to do so,” said Jubinville.
“Meeting the needs of your own farm to get your rotations and weed control measures in balance is probably the priority at this point.”
Nevertheless, take a closer look at your marketing plan, Turner added. That starts with understanding your cost of production and having “a clear game plan for what you’re going to do if the market gets to a certain level.”
“Because we’re so busy during the seeding season, now is the time to nail down that grain-marketing game plan, because when the time does arrive for those opportunities to come up, you need to be prepared for it,” he said.
“I don’t want to paint an entirely doom-and-gloom scenario because of COVID-19, and I don’t want to be overly bullish about this yet, but I do see a strong demand for commodities coming down the line,” he said.
“There’s going to be ups and downs to this market through the growing season, but I do think there’s going to be a lot of buying interest that’s going to manifest itself.”
But right now, no one can say how the pandemic will play out, so producers will need to be patient and get ready to respond to the changing situation.
“It’s really unknown here how long it will be before we get back to a place of normalcy,” said Turner.
“We’ve seen a spike in this economic downturn that’s been very quick and very abrupt, so there is this line of thinking that the economy is just going to rebound quickly once we get past this coronavirus.
“But the impact is a lot deeper than that, and from a consumer behaviour standpoint, we’re not going to get back to normal overnight.”