Commodity prices knocked down by tsunami disaster, future uncertain

Ahead of the Heard

The unfortunate earthquake in Japan had an immediate effect on agricultural commodity prices.

Futures prices nose-dived as hedge fund speculators bailed out of the market in droves.

Their sell-driven fear was that prices would continue to slide and they needed to jump ship to save some of their profits that have been piling up over the last few months.

At the same time other buyers were selling on futures going even lower. It’s the nature of speculation and part of the free market.

Corn, wheat and cattle have had a good run over the past year, with buyers betting on fears of shortages.

That may well prove true for cattle as the North American herd continues to decrease, it’s slowing but there seems little interest by cattle producers to rebuild the herd.

Even if they did expand it would initially aggravate any perceived shortage as producers hold back heifers that would otherwise have been sold into the slaughter market.

Cereals are another matter, there is a tight market in quality wheat, and weather calamities in Australia have pressured the market.

However, out of the blue, the earthquake shook the market fundamentals and wheat prices began to drop.

The thinking seems to be that Japan is going to be out of the grain market for a while because its attention will be focused elsewhere. Damage to grain handling and processing infrastructure may delay deliveries.

This situation may well cause sellers to hang onto grain stocks until Japan returns to the market.

Corn seems to have a mindset of its own. Prices were very strong but not because there was an actual shortage.

There was a perception that ethanol demand was holding the price up – be that as it may – most corn is not used for human consumption it goes into the livestock and poultry feeding business. Even the byproduct from corn ethanol has a value as DDGS.

That used to be seen as a product that had to be given away – instead now it is significantly increasing in value because substantial quantities are being shipped to China. That was unheard of just a few years ago.

If prices continue to slide, it will be good news for the cattle and hog feeding industries.

They were being hit with that double whammy that causes sleepless nights – higher feed prices and high feeder prices. For grain growers – depending how far prices slide and stay depressed – the dilemma will be which crops to plant this spring. Wheat looked so good it was anticipated that acreage would sky rocket at the expense of barley.

That had maltsters and brewers crying in their beer as they were anticipating a scramble for what malting barley was still available, never mind worrying about what not was going to be planted. Weather, of course, will play a big part – a late spring tends to favour barley.

Cattle feeders don’t worry as much as they used to about barley – if they can’t hedge or buy it at a certain price, they go out and buy corn or DDGS from the USA, that’s become a particularly attractive option with the high flying value of the loonie.

The next four months may be trying for all those in the grain and feeding business.

Curious, the mainstream urban media has spent the last six months fearmongering about the increase in ag commodity prices. Not a peep from them as those same prices collapsed literally overnight.

They were predicting food riots and alleged that much of the turmoil in the Middle East was due to high food prices. According to that media myth, then, I guess the riots and turmoil will soon stop as food prices go down – well, don’t hold your breath.

To many of us, it is insulting to read that the blame for many of this planet’s problems are due to high food prices.

The connotation is that growers and producers should be grateful that they get any price for the food they grow.

Growing it for a profit somehow is deemed to be shameful in a starving world. That is particularly annoying coming from an urban media that has no understanding of agricultural production. Farmers and ranchers accept that they are at the mercy of the free market. But wouldn’t it be nice to benefit more from the up side of the market and not be criticized for doing so.