Drought conditions in Alberta will have an upside for crop growers when marketing, but it’s nothing but bad news for cattle producers.
“From a bigger-picture perspective, certainly we’re going to have fewer bushels in Western Canada than in the past couple of years, and that is generally going to be supportive to prices,” said FarmLink’s senior market analyst Jonathon Driedger.
“All things being equal, this is good for farmers. There’s more competition to buy the grain that is out there. It may not be as pronounced in the fall, but it will be as the year goes on — just because there’s less grain that they’re competing for.”
It will also be less of a challenge getting grain into the elevator this year, said Driedger.
“There’s always going to be some pressure to move grain into the system in the fall, irrespective of big crop or small crop, as some farmers may have forward-sold some for harvest delivery,” he said. “But compared to years where you get a glut and you try to ram it into the system because you run out of space, that’s going to be less of an issue this year.”
On the flip side, some farmers may choose to hang onto grain to take advantage of higher prices later in the season, simply because they have the bin space to do so.
“Individual farms will still be addressing their cash-flow needs and navigating that with fewer bushels, so maybe there will be a little bit of a tendency to be a little tighter and hang onto your grain when there’s less of it, especially if prices are supportive” said Driedger.
That’s really going to vary based on individual circumstances, he added.
“Your average farm may be a little bit disappointed in yields, but maybe it’s not a disaster,” he said. “They’ll just have less grain to sell, so in some ways, it magnifies each individual selling decision because there’s simply less of it.”
For instance, if a farmer has forward-sold 20 per cent of his or her canola, “pretty soon that 20 per cent becomes 35 or 40 per cent because you simply have less grain than you expected.”
“In some cases, farmers will be more heavily sold than they intended to be, so it may magnify the remaining decisions a little bit,” he said.
Even so, the basic principles behind marketing that grain won’t be different if the crop is big or small.
“Maybe the actual decisions you make look a little different, but it comes down to having a good sense of what kind of cash you need to generate for your business and when, and then having a really good understanding of the markets for each individual crop you have.”
The picture will be a lot clearer once the crops come off, he said.
“We’ve had years before where we’ve really been surprised by how resilient some crops have been, so fine-tuning some of these plans will have to wait until the crop is in the bin,” said Driedger. “But it will magnify each selling decision because there maybe just fewer bushels you have to deal with.”
Different for cattle
The dry summer will have with the opposite effect for cattle producers.
“We’ve got a few things working against us right now, and it’s hard to see much relief,” said Canfax senior market analyst Brian Perillat.
One of those things is feed prices.
“At this point, it’s getting too late to see grain production rebound — the crops are too advanced,” he said. “We’ve already seen some impact on grain prices. At this point, there is certainly that risk that feed costs could go up a little bit more.”
Barley prices in Lethbridge had shot up to $215 a tonne by early August, compared to $180 in June. That sharp increase has seen feedlots cut their bids by almost 10 cents a pound and that may become a trend this fall. That’s a contrast to last year, when Western Canada had a feed cost advantage.
“Through most of last year, we didn’t export many feeders,” said Perillat. “They stayed here because we had a lot of feed and it was relatively cheap.
“If this weather continues and the U.S. gets their corn crop, we could start to see cattle move south in a bigger way.”
As well, dried-out pastures may force producers to move stock sooner than planned.
“To some extent, we’ve been a little bit surprised that we haven’t seen as much cattle movement as we thought,” said Perillat. “We’re seeing a few yearlings come off grass earlier than expected in some of the dry areas, but we’re not really seeing cows move yet.
“Guys are trying to manage grass and move yearlings so they can keep the cow herd intact.”
As August progresses, that will likely change, he added.
“We will probably see earlier movement of calves and maybe more cull cows come earlier rather than later,” Perillat said in an interview in early August. “If it stays dry for another month, I’m quite sure we’ll see movement pick up ahead of schedule.”
At this point, cattle producers will need to “be proactive,” he said.
“Managing your inventory relative to your feed supplies is what we need to look at,” he said. “Maybe it is culling a little harder rather than paying big dollars for feed, depending on the situation.”
But overall, prices “aren’t so bad.”
“I think a lot of these guys that are having to sell cattle will still have profit in the cattle,” said Perillat. “Moving a bit of cattle right now at a profit to potentially save some headache down the road might not be a bad idea.”