It’s been a tough year for grain growers in Alberta, but strong prices are giving many a reason to celebrate as they head toward harvest.
“If you look at the positives, there has been a move higher in prices in crops that are really impactful for Prairie farmers,” said Jonathon Driedger, senior marketing analyst at FarmLink Marketing Solutions. “That in and of itself is a positive story.”
Spring wheat is the one that’s “most pronounced and getting the most attention,” he said.
“Even within a wider world of abundant wheat supplies, the supply of good-quality, high-protein wheat is going to be quite tight, and that should be fairly good for prices over the course of the growing season,” said Driedger.
Dry conditions in the U.S. and Australia — two of Canada’s major export competitors — have created “some pricing opportunities for farmers in Canada,” said Alberta Wheat general manager Tom Steve.
“There is the potential for a much smaller wheat crop,” said Steve, adding American wheat plantings this year were the lowest in a century.
“If there is a shortage of high-quality wheat coming out of the U.S., which it appears there will be, it is an opportunity for us to capture those markets and capture a bigger share of the premium markets in the world,” he said. “Hopefully, we’ll be able to take advantage of these prices if we get an average crop.”
But for growers in southern Alberta, those higher prices are a “double-edged sword,” said Driedger.
“Part of the reason prices rally is because crops are short, and unfortunately, that means sometimes it’s your own crop that’s short,” he said. “It’s an unfortunate thing for those farmers who are genuinely suffering from stress from heat and dryness, and certainly, my heart goes out to them.
“But from an overall perspective, I think there are a lot of things to be positive about. I think there are reasons to be optimistic.”
Optimism for other crops
Rimbey-area farmer Jason Lenz agrees.
“Prices in general are up and there are some good pricing opportunities for guys,” said Lenz. “There’s some good optimism, let’s put it that way.”
And it’s not just a “short-term sugar rush,” added Driedger.
“For a lot of these Prairie crops, there genuinely is going to be a tighter balance sheet as you look at the coming year,” he said. “There’s a generally good price structure for those crops, and that should hold through a good chunk of the year.”
Canola prices in particular have firmed up.
“Canola has had a bit of a run over the last couple of months for old-crop canola, and new-crop prices are holding steady and still remaining at that profitable level,” said Lenz.
“There will be volatility — an ebb and flow — but the canola balance sheet coming into the current year was extremely tight. We need all the production we can come up with,” added Driedger.
Lower yields are expected in most areas, “so we’ll probably have pretty decent prices,” he said.
Feed barley took “a pretty big jump” in July and malt barley prices are also up.
“With the dry weather down south, we may see a bit of an increase in malt barley prices,” said Lenz.
Pulse crops have also seen an upswing in prices, especially lentils.
“The price of lentils is down from where they were a couple of years ago when they were ridiculously high — but at the same time, the demand is growing for those crops,” said Driedger. “Even when we have a lot of those crops, the price isn’t completely buried the way it might have been five years ago when demand wasn’t nearly as robust as it is now.”
For pulses and canola, there’s “good underlying demand growth,” and that will help carry strong prices into the future, he added.
“With some of these crops that are important for Prairie farmers, there’s a good structural underlying demand story for them, irrespective of the fact there’s a drought and prices have gone up.”
Taking advantage of opportunities
But — and there’s always a but — producers can’t bank on prices continuing to go up, Driedger cautioned.
“It is a weather market, and sometimes things look worse from a yield perspective when you’re in the middle of it,” he said.
Producers are at a “critical window” where the weather could make or break crop yields, and that will impact pricing either way. Timely rains could see a pullback in prices, said Driedger.
“How the next two or three weeks play out will have a huge impact on prices going forward. You get enough decent rains in the right places, and prices could pull back,”he said.
“If weather turns a lot more favourable, some of the air could come out of it,” said Driedger. “For some of the Prairie crops, that doesn’t mean a collapse — but we want to be a little cautious that we are not too rambunctious that prices only have one way to go.”
Producers can manage some of that risk by “taking advantage of all the tools that are out there.”
“You want to make sure you are taking advantage of these prices, locking in some values and managing that downside risk, and yet leaving the potential for good pricing opportunities going forward,” said Driedger. “For these Prairie crops, there’s a genuine story underneath them that warrants good pricing.”
At this point, producers need to strike the right balance between managing their downside risk and leaving some upside open.
“It’s hard to navigate some of the volatility we’ve seen in the markets the past couple of weeks, but having a good marketing plan is a way to do that for each individual farm,” said Driedger.
“The world wants a lot of what we grow, and that’s a really positive thing.”