Reality is slowly seeping into the psyche of the grain industry. Prices have come down a long way. The unfortunate truth is that they aren’t likely to bounce back any time soon.
While unlikely to fall to the bargain basement levels of a few years ago, prices in 2009 are also unlikely to resemble the all-time highs many commodities saw earlier this year.
Greg Kostal of Kostal Ag Consulting in Winnipeg is telling producers that it’s going to take six to 12 months to change the market psychology. The biggest issues are the lack of demand and the general economic malaise.
The Canadian Wheat Board estimates world wheat production this year was 660 million tonnes, up from 611 million the year before. Production will outpace consumption for the first time in three years, leading to higher ending stocks.
Top-grade spring wheat with 12.5 per cent protein, after deducting average Saskatchewan freight and handling, was worth $4.10 a bushel back in 2006-07. For 2007-08, the price through the CWB is expected to total $8.36.
The current estimate of the pooled price for 2008-09 is $6.61 a bushel. For the 2009-10 crop year, Kostal is suggesting farmers budget for a price in the $5 to $5.50 range.
The farm gate price of durum skyrocketed from $4.65 a bushel in 2006-07 to an amazing $12.55 in 2007-08. For the current crop year, the most recent pool return outlook calls for a price of $8.17, the second-best price ever.
However, it isn’t certain whether the CWB will be able to market all the durum producers want to sell. So far, only 60 per cent of what producers have offered has been accepted.
International feed barley prices are so low that very little Canadian barley is being exported.
A two-row malting barley price of around $5.50 a bushel is predicted for the current crop year. Kostal is advising producers to pencil in $4 to $4.50 for next year.
Canola that was around $15 a bushel during the summer has dropped to about half that lofty price. Kostal says canola will stop dropping when the price of oil bottoms out. He likes the canola price outlook for 2010 when increased Canadian crushing will be on stream, but he isn’t as optimistic for 2009.
A large volume of canola needs to clear the system and to do that it will have to be competitively priced as compared to soybeans.
Prior to harvest this fall, prices of over $9 a bushel could be locked in for yellow peas. The current price is in the $6 range. Analysts like Kostal say that in order for all of this year’s production to clear the system, peas would have to be diverted from the edible market to feed use at much lower values. He isn’t expecting an overall rally any time soon.
On large green lentils, Kostal is aggressively recommending sales before prices drop even further. Prices that were 40 cents a pound back in the summer are now in the 27-cent range. Kostal says they’re heading to 20 or even 15 cents a pound.
The good news, for producers who didn’t stock up early, is that fertilizer prices are on the way down. Urea, 46-0-0, that was over $900 a tonne is now available at prices well under $600. Phosphate that was well over $1,300 a tonne is now around $900 at many outlets.
With dropping fertilizer prices, profits should still be attainable for producers who can grow a good crop in 2009, but the substantial profit potential from 2007 and 2008 has ended.
Kevin Hursh is a consulting agrologist and farmer based in
Saskatoon. He can be reached at [email protected]