Grain prices have slumped since January and will continue to trade sideways. But spring rallies could provide profitable selling opportunities, says Mike Jubinville, president of ProFarmer Canada.
Although the immediate outlook is discouraging for farmers, longer term Jubinville expects commodity prices, including grain, to rise due to inflation.
“(T)his is not going to be a wildly profitable agricultural year,” Jubinville told farmers at the Manitoba Special Crops Symposium Feb. 11 in Winnipeg. “I think we’re going to have periods of time where we’re going to have the ability to lock in profits – reasonable profits – but there’s going to periods of time where prices will be ebbing and flowing down to the downside.”
In the meantime, when the delivery basis gets within the top third historically, farmers should lock it in as it usually widens when futures prices improve, he said.
Jubinville said he sees signs of the “two, two and two” philosophy at play – grain prices rise for two years, fall for two and trade sideways for two.
“If we are moving into a sideways range that tells me farmers need to be prepared to sell into a rally,” Jubinville said.
“So we need to set pricing targets and act on them in 2010 and have a fairly conservative approach in mind looking for those pricing opportunities that are profitable.”
Farmers can also expect increase price volatility as capital fund speculators, who bailed out of grain prices when the U. S. economy began to falter, move back in. Some rallies will be a little higher than they’d otherwise, giving farmers better pricing opportunities.
Grain prices are trading in a lower range, but it’s higher than the old lower range, Jubinville said. In the past, the lower range for canola futures was $250 to $400 a tonne; now it’s $350 to $450, unless crude oil prices hit $100 a barrel or the American dollar tanks.
“I think the highs that we saw at the beginning of January might very well be the highs we’ll see all year,” he said. “So $9 (a bushel) canola or just better may be as good as this gets this year. Maybe $275 (a tonne) flax – that’s as good as it gets, unless something changes here.”
Canola exports are going better than expected given sales to China – Canada’s biggest canola customer last year – have dried up. Domestic crushing is down because the U. S. won’t import canola meal with traces of salmonella.
The longer-term outlook for canola is good because of Canada’s expanding crushing capacity.
“I think that’s a good thing for the industry right through the whole chain,” Jubinville said.
Soybean prices will also continue to trade sideways, he said.
The same for wheat. Prices have fallen because world production exceeds demand.
It’s going to be a difficult environment to make money on wheat, but the (Canadian Wheat) board (CWB) has an opportunity at least from the protein side.”
While wheat prices have fallen, prices for high-protein wheat haven’t fallen as much, Jubinville said.
Jubinville predicted the CWB’s first new crop Pool Return Outlook for No. 1, 13.5 per cent protein Canada Western Red Spring wheat to be announced Feb. 22 will be between $4.50 and $4.75 a bushel at the elevator.
Corn, barley and oats will also trade sideways, Jubinville said. But Lethbridge cash barley will trade between $135 and $145 a tonne, instead of $100 and $115 as it used to.
Domestic barley prices will continue to trade at a premium to world prices, Jubinville said.
North American barley yields remain flat, while corn yields keep increasing.
Meanwhile, domestic barley consumption continues to decline as there are fewer livestock to feed in Canada and increased imports of distillers dried grains from American ethanol plants.
Farmers can look forward to better prices next year as inflation builds in North America, Jubinville forecast. The U. S. government printed a lot of money, distributed it to banks to lend to stimulate its economy and lessen the recession’s impact.
Inflation is caused when too much money chases too few goods, he said. As the supply of money rises, its value usually falls.
“I think better times are coming for the grains and oilseeds and pulses. In that sense I’m quite optimistic,” Jubinville said. [email protected]