High Prices Limit Demand for Canadian Crops
As the old saying goes, “the best cure for low prices is low prices.” In many Western Canadian grain, oilseed and special crop markets, we’re learning the opposite also holds true as well. Rallying markets early on in the season have done a very good job of curing high prices.
Take the case of canola: for the last two seasons, growers who simply delivered into fall cash markets at the time of harvest ended up with their crops sold at prices close to the yeaf’s market peaks. This year, the same holds true for wheat - for those who took the opportunity to cash out of the pools.
The 2002-03 marketing year is a long way from over, but growers are starting to wonder what happened to this year’s strong markets. After waiting years in some cases for profitable prices to return, the fun looks to be over after only six months. The wheat PRO is down to levels not seen since before the drought set in, canola futures are off $75 per tonne from their highs, and even pulse and special crop markets – markets that Canada controls such a large share of the trade in - have weakened.
When normal growing conditions prevail, new-crop prices tend to be relatively strong in the spring when supplies are typically running low ahead of the end of the crop year. By fall, when the crop has been harvested and everyone wants to sell to the elevators, the value of the crop will usually fall.
This year’s growing season was clearly different. Of course there are factors independent to each market also impacting values, but in all cases worsening drought conditions throughout the summer months across the Prairies drove prices sharply higher – which in turn drove demand away.
In markets all over the world, buyers have found alternative sources and products to meet their requirements. They’ve been forced to do so since the prices for Canadian crops were too high for them to make a profit. Grain, even high quality Canadian grain, is still a substitutable commodity.
This is not a phenomenon specific to overseas, low-priced markets. Canadian malt barley buyers are using extremely expensive European supplies and feed grain end users in Western Canada have largely switched to imported U.S. corn.
What’s the lesson to be learned?
The vast majority of grain buyers will not simply pay whatever it takes and Canada does not control world prices. When prices get too high, and especially when the markets get over-bought early in the crop year, buyers find what they need elsewhere. The result is weak demand for Canadian commodities and, sooner or later, lower prices.
agsolutions.ca |
