Bewildered farmers may well be wondering what caused the global financial crisis and what the future holds for commodity prices.
Analysts discussing the topic at this week’s GrainWorld conference in Winnipeg couldn’t offer much by way of answers.
While the world faces a big recession with no quick recovery, the feeling was grain prices will hold their own and possibly improve.
But the unexpected market crash has pushed the world economy into uncharted waters, panelists said.
Brian Oleson, a University of Manitoba agricultural economist, called the financial crisis a “black swan” event that no one saw coming.
(A “black swan” is a rare, large-impact and hard-to-predict event.
Similarly, everyone believed the economic boom would continue and markets were sound until the crash came in late 2008, Oleson said.
Alex McCalla, professor emeritus of agricultural economics at the University of California, Davis, listed four theories for the collapse.
What’s known is that between 2006 and 2008, market prices for wheat, corn, soybeans and rice nearly tripled, then fell back, ending up only 30 per cent higher.
The Alberta-born McCalla said the long-term outlook for commodity prices is still positive. He said the OECD predicts real prices for grains in 2017 will be higher than they are now. Wheat is predicted at $200 a tonne. Only beef prices are not expected to increase.
But McCalla also noted that since 1870, grain prices have fallen 200 per cent in real terms except for three brief periods: 1910-14, 1972-74 and 1995-96. Each time, the price spike was followed by a return to the long-term downward trend.
McCalla said the underlying fundamentals for commodities this time are more positive: strong demand, an increasing world population and a rising middle class in populous countries such as China and India.
But he cautioned that markets are now vulnerable to shocks and another round of unsteadiness is likely. “The name of the game for the future is more instability.”
Oleson also wondered if a price decline like the one following the “great grain robbery” of 1972-74 was possible.
But he suggested commodities today have price floors below which they will not go: $3.50/bu. for corn, $8/bu. for soybeans and $400/T for canola.
Bruce Dalgarno, a former Manitoba Canola Growers Association president, disputed the idea that commodity prices have not fallen as sharply as stock market prices.
Dalgarno, who farms at Newdale, said stocks are down 35 to 40 per cent on average but grain prices today are less than half what they were a year ago. Input prices have dropped too, but not nearly as much. “The risk to the farmer, who’s still going to go and put those inputs into the ground to grow a crop, is far greater than it has ever been.”
Dalgarno says it costs a farmer around $200 just to get a crop planted. “Any programs that the government has, crop insurance or whatever, don’t even come close to covering the farmer.” [email protected]