Grower links grain price dip to season, financial crisis
Sunday, October 19, 2008
by SUSAN MANN
The current dip in grain and oilseed prices is partly due to the financial crisis in the Unites States, says Jeff Davis, chair of the safety net committee for the Ontario Corn Producers’ Association.
Traditionally prices do fall at this time of year because crops are being harvested but Davis says they wouldn’t have fallen so low if it weren’t for the crisis. Last week, corn plunged to $3.86 from a high of about $6 a bushel in June.
“The price wasn’t expected to go down as much as it did,” he says. “It dropped with the U.S. financial crisis.”
When the corn price was on the way up fertilizer and other input costs went up too, Davis says. Now there’s a lower corn price but input costs haven’t fallen, especially fertilizer. That concerns Davis.
“It’s my understanding that the wholesale prices have not dropped either,” says the St. Thomas-area farmer who grows corn, soybeans and wheat on about 900 acres.
What will happen with fertilizer prices is a big question on this farmer’s mind: “We (growers) certainly hope that it goes down but right now there’s no indication that it would.”
Alfons Weersink, an agricultural economist at the University of Guelph, notes the United States’ economic slowdown is causing a fall in all commodity prices because increasingly commodities prices are linked together. For example, he points out that ethanol “sort of serves as a link” between corn and crude oil prices. Higher crude oil prices push up corn and soybean prices because it pushes up the price of substitutes like ethanol and biodiesel, he explains.
Dale Petrie, general manager of the Ontario Soybean Growers says farmers are somewhat used to market volatility because it’s quite common in agriculture. But “this roller coaster ride is pretty much unprecedented with the high of commodity prices and then the rapid decline.”
The United States’ financial mess may also be causing more than usual volatility on the futures markets, notes Peter Tuinema, manager of programs and policy for the Ontario Wheat Producers’ Marketing Board. Investors may either go into the futures markets or abandon them depending on what’s happening on the stock markets. “You can have a quick change in prices,” he says.
Another effect is a drop in the value of the Canadian dollar. Last week the Canadian dollar was worth about US$0.85; a year ago it was up to US$1.10 and it hovered around US$1 throughout the winter and spring. But it also means that products farmers have to import, such as machinery parts, cost more.
While some analysts are concerned the United States’ financial problems may lead to a world-wide recession, Tuinema says the effects would be worse on industries like manufacturing than on agriculture. “If you get into a recession people, especially in North America, may eat differently but they still eat.”
Al Mussell, senior research associate at the George Morris Centre, agrees. Budget-constrained people will do more cooking at home and less eating out. They’ll also move to more stable foods and fewer pre-prepared meals or luxury foods.
Barry Smith, Farm Credit Canada vice-president of operations for Western Ontario, says there hasn’t been any sign yet of a global recession and it’s too early to say that’s going to happen. But (if it happens), it will impact farmers. “Anything that puts pressure on the prices that either farmers or processors receive for their goods is going to have a negative impact,” he says, adding that FCC believes it can work through any tough times with farmers as it has in the past.
Weakened demand caused by a recession will cause a drop in crop values, Davis says. But he figures the federal Conservatives’ election promise to introduce an agricultural flexibility program should give farmers some protection. Petrie agrees. “We’re (soybean growers) encouraging our recently-elected politicians to consider going forward on this regional flexibility (program),” he says. BF