Analysts Say Grain Markets Headed Sideways For Now

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Bad weather – preferably elsewhere – is Prairie farmers’ best bet for a wheat market rally this year, the Canadian Wheat Board’s director of weather and crop surveillance unit told farmers attending Manitoba Ag Days Jan. 20.

“We’re going to need a weather event in one of those big six (exporting) countries to turn the wheat market from trading neutral and maybe dipping to increasing prices again,” Bruce Burnett said.

Burnett said India is already suffering the effects of a failed monsoon, but markets have already factored that in. Eyes will soon turn to Australia, which is vulnerable to the effects of the ongoing El Nino effect.

While demand has remained relatively strong for wheat in the world, despite the global recession, two record crops in a row have created surplus supplies.

Projected global wheat production is 644 million tonnes this year, largely due to declining acreage in key growing areas. That is lower than the 676 million tonnes the world produced in 2009 and 682 million tonnes produced in 2008. However, it is still enough to meet the projected demand.

Burnett said the relative strength of the Canadian dollar against U.S. currency will further cut into farmgate returns. On a brighter note, he said he doesn’t believe, based on historical charts, that it will face further devaluation.

Meanwhile, the price of oil has bounced back to the $80 per barrel range, and Burnett suspects that market will continue to be strong, which increases the value of agricultural commodities and the attractiveness of biofuels produced from grains.

ETHANOL PLANTS HUNGRY

Burnett was also cautiously optimistic that U.S. corn prices, which factor into Canadian barley values, will find support from the growing U.S. ethanol sector despite recent USDA data that pegged last year’s crop a record.

Ethanol is expected to overtake livestock as the largest single domestic user of corn in the U.S. within two years. “Despite prices getting hammered this past week, the fundamentals for corn are really quite neutral,” Burnett said.

However, he cautioned the outlook isn’t bright for barley, given the current state of Canada’s livestock sector. “Without a vibrant livestock sector, it’s going to be hard to get prices up,” he said.

The pulse outlook is the most encouraging, with strong demand and good prices. The oilseed outlook is neutral, with good demand but large supplies.

In his market outlook, ProFarmer Canada analyst Mike Jubinville seems firmly between the bulls and the bears, Jubinville is predicting prices will follow a sideways trend for much of 2010.

Higher supplies of key commodities, in fact a U.S. corn crop that unexpectedly broke the previous record, and growing stocks of wheat, are curbing upward market movement.

Meanwhile, continued demand from Asia, the ethanol industry and robust speculative interest in commodities by non-traditional investors, are underpinning markets on the downside.

FUNDAMENTALS STILL IN PLAY

Jubinville acknowledges the current market scenario is a far cry from the unprecedented prices farmers saw a 18 months ago, but he said many of the fundamentals underpinning that market surge remain in play.

“A lot of the issues affecting the markets at that time are still underlying the markets today,” Jubinville said. The problem is, so are a lot of other political, macroeconomic and supply factors that are adding a bearish tone to trade. Trade disruptions due to the discovery of genetically modified flax in Canadian shipments and salmonella in canola meal is hampering trade, which also has an effect on prices, he noted.

Jubinville said farmers’ best selling opportunities could well be to watch for basis “carrots” companies offer when trying to draw stocks into the system.

As well, he advised against farmers panicking and rushing into the market to sell of commodities such as oats at the first sign the market is falling. “Let’s not chase this thing down when it is testing its downside,” he said. “Now is not the time to go chasing the oat market.”

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]

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