Manage risks by understanding the market
By Farm Credit Canada
Features Business & Policy Farm Business Business/Policy CanadaJul. 24, 2013, Regina, SK – Managing price risk in a volatile market begins with understanding the factors that influence commodity prices, according to J.P. Gervais, Farm Credit Canada’s (FCC) Chief Agricultural Economist.
“Producers receive a wide range of price forecasts for a variety of commodities, so it can feel like a guessing game on when to sell to get the highest possible price,” Gervais says. “Producers can make better decisions by developing a deeper understanding of the factors that influence commodity prices and by having a risk management plan.”
Gervais says that ultimately prices come down to the supply-demand balance, which is generally measured by the stock to use ratio.
Three main factors influence commodity price forecasts:
- Weather: Adverse or favourable weather can significantly impact commodity supplies and prices. Last year’s drought in the United States drove up corn and soybean prices; while this year’s delayed seeding across the Canadian prairies could ultimately impact yields and commodity prices.
- Supply response: Describes how producers react to commodity prices by altering the amount of land they seed. This reaction to prices by producers in North America and the rest of the world could have a major impact on future commodity prices.
- Demand: World economic growth can have a lasting impact on meat demand, resulting in a significant change in the demand for feedgrains, while short-term impacts can be caused by food safety concerns or expansion of alternative uses for certain commodities.
Gervais says commodity price forecasts can differ significantly due to a variety of assumptions and methodologies used by individual forecasters. Some forecasters use producer surveys to analyze planting intentions and expected yields, while others rely on satellite imagery to estimate yields, or a combination of both.
Based on the United States Department of Agriculture World Agricultural Supply and Demand Estimates, the average corn price in the next marketing year will be US$4.80 a bushel. Soybean prices are expected to average US$10.75 a bushel while wheat is projected to be around US$6.45 to US$7.75 a bushel. These estimates are consistent with many private-sector forecasts which suggest prices for most crops should be below last year’s prices, but will remain above the 10-year average.
FCC offers free learning events throughout the fall and winter, including the following seminars on commodity marketing planned for later this year.
Fundamentals of Commodity Marketing
Dec. 10 – Wadena, Sask.
Jan. 10 – Lethbridge, Ata.
Jan. 14 – Listowel, Ont.
How to Master Commodity Marketing
Nov. 27 – Carman, Man.
Dec. 12 – Saskatoon, Sask.
Jan. 15 – Chatham, Ont.
For more information, visit the FCC at www.fcc.ca.
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