Commodity markets look to have bottomed out, but don’t expect a massive price rebound anytime soon.
That was the cautious message agricultural producers heard from John DePutter, founder and President of DePutter Publishing Ltd., speaking at a Farm Credit Canada Ag Knowledge Exchange event held in Yorkton Monday.
“We’ve seen some pretty decent prices in general,” he said, but added high prices never last. “… What goes boom ultimately goes bust.”
DePutter said agriculture commodities “were surfing a bullish wave” up until 2008, when prices spiked, doing that again in 2012.
The last couple of years prices have tumbled, said DePutter, adding there is some indication the bottom is past. He said there are signs which support “that the worst is over.”
While prices climb for commodities after prices bottom out in a cycle, DePutter said producers should not expect a return to record highs anytime soon. In fact, he said the price levels of 2008 and 2012 may be years in returning.
Looking at a graph of the historic prices for corn, DePutter said there have been four high price spikes, the first two follow the demand following the two world wars, a third was in the 1970s, and the most recent in 2012. With only four spikes in nearly 100-years the expectation of another record anytime soon seems unlikely.
“We have come through another record boom,” he said. “We’re into a levelling out period that could last a couple of decades.”
DePutter said the situation might be longer in terms of recovery based on the extreme high prices of the recent record high spoke.
“The bigger the party the longer the hangover,” he said.
DePutter said we seem headed for a period of essentially sideways markets, where there is a remote chance of high spikes, but still a chance prices could dip on occasion.
As an example wheat is likely to fluctuate around $3.75 to $5 per bushels.
“It could nick below that $3.75 now and then,” offered DePutter.
But to hit the $7 prices of three or four years ago “we’d have to change a lot” in terms of market influences, he said.
While prices have declined, DePutter said Canadian farm producers have fared reasonably well, especially compared to their American counterparts.
“Canadian farm income really hasn’t dropped like it has in the US,” he said.
The reason for the better response on this side of the border has been the Canadian dollar which has helped in terms of sales.
The Canadian dollar may strengthen though.
“If the US dollar turns down it should allow the Canadian dollar to float higher,” offered DePutter. “… There is some risk of a higher Canadian dollar.”
DePutter said an 80-to-85 cent Canadian dollar against US currency would start to tighten margins for Canadian producers.
“I can’t see a reason it (the Canadian dollar) can’t get there,” he said.
Of course in crystal balling the commodity prices, there are also unknown influences, one being American president Donald Trump.
“We’re talking about a loose cannon, a wild card,” he said.
DePutter said he has always termed unexpected shocks in terms of price ‘black swans’ adding Trump qualifies as one of those.
While noting he is generally on side with Republican ideals, DePutter said he is not sure Trump was a good choice as leader, He pointed to a general trend away from the concept of free trade.
“There’s an antiglobalization trend going on too, which is sad. Agriculture needs exports,” he said. “The US and Canada both benefit from an open grain trade.”
The influence of Trump also plays in terms of his view of China, which has been a world market driver in recent years. DePutter says the relationship of China and the US thanks to Trump is somewhat strained, as there is a fear stateside China is an emerging superpower which could impact the hegemony America has enjoyed for decades.