CNS Canada — The bearish malaise that has gripped the North American agricultural market shows no sign of breaking soon, and it could take a major disruption, say such as a hike in oil prices, to lead the way higher, according to some industry watchers.
“Let’s say we go to US$55 (per barrel). That would definitely ripple through all the commodities; crude oil is the lead on commodity prices globally,” said Errol Anderson, president of Calgary-based ProMarket Communications.
Newfound optimism has breezed through the oil market in the wake of this week’s agreement by members of the Organization of the Petroleum Exporting Countries (OPEC) to curtail the amount of oil produced annually.
However, the agreement is just a few days old and previous efforts to get all members on the same page have run into roadblocks.
If OPEC members could start to regulate themselves, though, Anderson said it could be one of the few things that could actually jumpstart the market.
“To me a crude oil rally is much more powerful than anything a central banker can do. The big thing is we’re mired in this deflationary spiral. That’s hurting all sectors,” he added.
That viewpoint is generally shared by Mike Jubinville, an agriculture analyst and owner of ProFarmer Canada in Winnipeg.
“Oil is one of the three kings” in the market, he said, with gold and corn being the others.
However, while prices have climbed a bit in recent days, he isn’t convinced the members of OPEC will necessarily stick to the plan.
“There’s a bunch of cheaters in that crowd,” he said, likening the task to essentially herding cats in one direction.
There are also questions about how higher oil prices would affect the Canadian financial picture in the near term.
For instance, advances in oil generally push the Canadian dollar higher, which has a bearish effect on Canadian exports as it makes the cost of Canadian commodities more expensive for out-of-country buyers.
However, Anderson said, there are much larger factors behind the price and direction of agricultural commodities in North America.
An increase in crude prices “would mean that the economic engine globally is starting to show some inflationary pressure,” he said, adding that could help bolster the psyche of the grain trader.
He also feels markets are facing a challenge that is relatively new.
“We’ve never seen this kind of market before. To me, this deflationary spiral is something central bankers can’t stop. They can control inflation, but not the reverse,” he said.
— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow CNS Canada at @CNSCanada on Twitter.