Many Prairie farmers are looking at the calendar and examining their (lack of) planting progress, with some real concern about what this year’s production will look like. Given that much of Western Canada is in the same boat, surely the market should take notice and push prices higher for the crops we grow… shouldn’t it?
Markets can be cold and ruthless, and they certainly don’t care about your farm. While problems in your own backyard have a profound impact on your individual business, there is a pretty good chance that unless the problem is across the prairies and/or global-wide, the market will mostly yawn and say, ‘Who cares?’.
Grain flows relatively freely around the world, and prices are primarily driven by what happens on the world stage. They’re not focusing on whether it’s still too dry in Manitoba, or whether the snow in Alberta is preventing progress, or whether the delayed start to planting puts more of the crop into its key flowering stage during the peak of July heat.
Does this mean that what happens on the prairies doesn’t have any impact on prices? That’s not entirely true either.
The extent to which our own yields affect global markets varies by crop and depends on several factors:
- How large of a share do we have in global production and trade? We are the largest player in world export markets for crops like canola, durum and a number of pulse and specialty crops. This makes these markets more sensitive to our production, particularly if the stage is setting for a major problem. Our crop size will have very little global impact for mid-grade wheat or feed barley.
- How well supplied was the market going into the growing season? Large stocks carried in from the previous crop year provides a cushion to help buffer any yield threats. For example, it looks like Canada will be left with a sizeable inventory of durum, peas and red lentils going into the next harvest. This mutes the price sensitivity to yield concerns.
- What is the ability for end users to substitute other crops, or rather, avoid having to pay ‘too much’ for the supplies they need? A portion of vegetable oil consumption is very specific to for example, canola, although a large portion of demand is also very price sensitive. This limits canola’s upside if soybeans and palm oil are in abundance. Previous years of extreme prices have resulted in durum millers learning how to get by with lower quality and different blends if they need to in very high price environments. The world needs our high-quality-high-protein hard red spring wheat, but only a certain amount, and the volume required depends on the quality of the harvest in the rest of the world.