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“Many factors influence commodity prices,” says Neil Blue, provincial crops market analyst with the Alberta government. “The main price determining factors for most commodities are supply and demand.”
Factors affecting the availability of crop or of a competing crop in the largest production areas together with demand for those crops have the greatest influence on a crop’s price.
“Therefore, from the supply side, prices tend to follow the production cycle of a crop. 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.
Chart 1. Canola Cash Price Seasonality 2013 through 2022
“Canola prices tend to make a low during the September-October 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 pressure subsides and as demand again becomes evident.”
Canola prices tend to level off into year-end, trade sideways to lower into mid-February and then improve into spring. Canola prices tend to peak sometime in May-June and, unless production problems continue to support prices, canola prices usually erode from mid-July into a harvest low. Often that price decline into harvest is interrupted by a frost concern in August or early September.
“Seasonal price patterns are one factor to consider when developing a marketing plan and analyzing a market. Fall delivered prices tend to be the highest at the beginning of the growing season when production uncertainty is the highest. 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, Blue points out that 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. To price a higher percentage of canola before harvest, it is prudent to use the futures or options market to avoid the additional physical delivery commitments of contracts.”
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,” says Blue.
For more information, see:
Contact
Connect with Neil Blue for more information:
Phone: 780-422-4053
Email: [email protected]
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