“Many factors influence commodity prices, although the main price determining factors for most commodities are supply and demand,” says Neil Blue, provincial crops market analyst with the Alberta government. “Factors affecting the availability of a crop or of a competing crop together with demand for those crops have the greatest influence on a crop’s price. From the supply side, prices tend to follow the production cycle of a crop. On the demand side, crop prices tend to correlate to seasonal domestic demand and to less predictable export demand. To help with their pricing decisions, crop marketers should be aware of seasonal price patterns of crops that they produce.”
Seasonal prices are calculated by taking the average price for a certain period, such as a week or month, and comparing it to the average price over a longer period such as a year. Seasonal prices are usually plotted on a bar graph, with the annual price average as Index 100. Usually, such a calculation uses data from several years, thus reducing the influence of contra-seasonal price moves that happen in some years.
A 10-year seasonality price chart for Alberta feed barley in southern Alberta is shown below. The Lethbridge area has a high concentration of feed demand and often has the highest Prairie barley prices, with prices in other locations discounted by freight costs.
Figure 1. Feed barley price seasonality Lethbridge area
“Feed barley prices tend to make a low during the harvest period when there is the most abundant supply,” explains Blue. “Harvest progress, yield reports and buyer demand all affect timing of harvest price lows. After a harvest low, prices usually rebound as harvest-time selling subsides and as demand increases with the placement of cattle on feed.”
Winter weather becomes a factor for barley prices, with cold, stormy weather causing interruptions to barley deliveries and pushing prices higher. Cold weather increases feed consumption which increases demand and can increase price, at least in the short term. Meanwhile, export demand can arise, resulting in higher bid prices from exporters to acquire their export needs.
Another factor that has become important to barley prices is the cost of importing corn to Alberta to use as a feed substitute for barley. In the case of U.S. corn imports, the exchange rate also becomes a factor in that cost.
In late winter, barley prices tend to moderate as feeders have their feed needs booked and their cattle inventory may be reduced by sales. Prices then tend to improve into May-June as feed providers become busier with seeding activities while concerns of potential new crop supplies may arise.
Following a springtime price improvement during the seeding period, crop inventory sales tend to increase, particularly if new crop growing conditions are favourable. Unless crop production problems locally or internationally support prices, barley prices usually erode from mid-June into the harvest lows.
“Seasonal price patterns are one factor to consider when developing a marketing plan and analyzing a market. Harvest-time delivered price bids tend to be the highest at the beginning of the growing season when production uncertainty is greatest. That is often the best time to forward price some expected production, considering cash flow needs and available storage for the expected new crop.
“However, in a year of reduced crop production in a major Northern hemisphere area, prices can rise during the growing season right into harvest. Because of this possibility and that of an unexpected production shortfall on your farm, it is recommended to forward contract with buyers no more than about 35% of expected production prior to harvest.”
The bottom line, says Blue, is seasonal prices should be considered as more of a tendency than a certainty. However, of the many factors that can affect crop prices, the seasonal price pattern is a factor to keep in mind.
For more information, see:
Agricultural Marketing Guide
Source : Alberta.ca/agri-news