by BETTER FARMING STAFF
When analysts at the Chicago Mercantile Exchange predicted “the possibility” of $10 corn and soybeans close to $20 ahead of the July 11 USDA World Agricultural Supply and Demand Estimates, they were setting a bar the markets may not be ready for, even if hot, dry weather continues to dampen supply.
Published reports said AgResource President Dan Basse and founding principal of the Hightower Report Terry Roggensack came to the high-price possibility based on weather conditions not seen in more than 100 years in the United States - “the lowest soil moisture profile since 1895, and the second driest June since the Dust Bowl.”
However, two Ontario analysts are skeptical. Steve Kell, a commodities trader with Parrish and Heimbecker, says there are already signs of resistance in the marketplace.
Referring to the USDA World Agricultural Supply and Demand Estimates, which dialed back corn predictions by 20 bushels per acre, Kell says the initial market response was to raise the price of corn by 25 cents. “Then,” he says, “it went down 50 cents. By the end of the day, it was 25 cents lower than it started. That’s a sign that people are reluctant to go much higher.”
Kell says the markets are smart. An example, he says, is the way the markets view lower-priced wheat, which is in good supply, as a substitute for corn.
“If you’ve watched since probably April,” Kell says, “the price of wheat goes up and down as the price of corn goes up and down. They’re really substitutable starches.” That substitution is most visible in feed wheat that mills are substituting for corn. An International Business Times report on the NASDAQ website July 13 said “surging feed grain prices suggest a significant increase in global wheat feeding for livestock.”
Kell observes that “the wheat crop is not small so you substitute wheat for corn and that helps to offset the short supply of corn that might fall out of this drought.
“The market is pretty smart about using the next reasonable substitute,” he says. “I don’t mean to say corn can’t make 10 bucks, but, really, who’s gonna pay that much? There’s a certain number of people who will just quit using the stuff and a certain number of people who will substitute something else and that’s the way the market works.”
In an email, Kell said, “We don’t know how high values could go but in the past week we have seen substantial demand erosion. In the $7.50 bushel (corn) range, there are ethanol plants going idle and soybean export interest has also gone quiet. Once the market finds the place where the price-adjusted demand matches the weather-adjusted supply, then the market will have found its new level.” Kell also says it’s too early to say uncle. “If we have a couple of good rains now, we’ll have at least an average crop in Ontario and even the US.”
Grain Farmers of Ontario industry analyst Ahmed Chilmeran also believes it’s too early to say where the markets might end up.
“It’s a long way till September,” he says. “I would say anything is possible. A scenario of 20 bucks for soybeans and $10 for corn seems, at this point in time, a bit unlikely.”
As grain prices go, so the price of feed goes and that has implications for farmers and consumers.
Dennis Kornelsen is director of commodity purchasing at HyLife Ltd. in Winnipeg. He also chairs the board of the Animal Nutrition Association of Canada, the national trade association for Canada’s feed industry.
Kornelsen says when grain prices go up, feed prices go up immediately and that, he says, will cost everyone from the producer to the consumer.
“In the end, it’s going to cost everybody more money.” BF