Perrin: Futures market is looking bearish
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- Published on Thursday, February 14, 2013
By: Steven Perrin
myWestman.ca
The year 2012 was nothing if not the granddaddy of all weather markets. Following initial predictions of record harvests, moisture challenges in Argentina and Brazil, similar problems in Eastern Europe, and a once-in-a-quarter-century drought in the corn belt of United States, well, you know the rest.
Prices soared to reflect the high demand for a much smaller world harvest than expected. We continue to feel the effects of last year's challenging weather. Corn supplies have been tight and thus, prices so high that many livestock operations have been forced to downsize or go under. Currently, nearly 10 per cent of America’s 211 ethanol plants sit idle due to corn scarcity.
At the recent slate of ag shows across the country then, it was unsurprising to find the dominant chatter among farmers centred on speculation about how the market will behave this year. Where can we expect prices to go? It depends on how the various production regions perform and it's still very early to make confident predictions. The general feeling among many analysts at this point is that we should prepare for the likelihood of price softening in 2013. It is hard to imagine a consecutive year so dominated by adverse weather and already we can make a few observations about the 2013 crop that suggest a larger harvest than last year:
South America: Harvests have begun there and despite lower-than-expected yields in Argentina, the overall soybean harvest is likely to be high due to a strong Brazilian crop. Soybean futures prices dropped 2.3 per cent last week in response to this news.
Europe: Russia experienced above-average winter kill this year but with Ukraine in good shape, harvests in Europe are expected to improve over last year.
USA: In the western corn belt, drought conditions have persisted through the fall and winter with much lower snowfall causing concerns about soil moisture during planting. The eastern corn belt has seen healthier levels of snow, however. The record number of acres farmers are expected to plant to soy and corn is likely to offset a weak harvest in a few regions.
The bottom line: The South American crop will be good, which on its own is a fairly strong indicator that prices are likely to soften a bit this year. The next major indicator will be how smoothly the planting goes for US farmers, so keep an eye on the western corn belt to see if moisture conditions improve there.
