What demand destruction? Grain prices seeing "surprising" strength through harvest

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The cure for high prices is high prices, but the world has to eat.

Depending on which adage you subscribe to right now, the global grain markets are either bucking the trend or proving the point.

Neil Townsend, senior market analyst with FarmLink Marketing Solutions and GrainFox, agrees that the current commodity price strength is perhaps a surprise given the time of year and shear height of some prices.

“We are a little bit surprised, we thought that the price structure that we saw for pretty much every commodity, particularly the main ones, like canola, wheat, durum, barley; the prices have been sort of strong, or, if not getting higher during the harvest period, that’s a little unusual. And we looked at the uncertainty in the volatility, the macroeconomics, all the geopolitics. And, you know, we kind of thought with the inflation and interest rates and everything like that, we just thought that demand might be a little bit slower. But demand has been, in a Canadian context, has been pretty good, we don’t really see much weakness,” he says.

What’s behind the continued run is complex. To the point of, “The world needs to eat,” there is a key volume of demand that really has stuck even through these volatile times, so there must still be some margin for processors in China and around the world, Townsend says.

But how long that lasts is up or discussion, too. Townsend notes that reports of a poor quality wheat crop coming off in Australia could bode well for Canadian grain. So too could the seemingly supportive comments made recently by China regarding being a good trading partner with the West.

Of course, that’s all balanced against the possibility that the full effect of rising interest rates, inflation, and a global recession have simply not yet been fully worked in to the commodity equation.

Tap below for the full discussion with Neil Townsend (complete with an early Grey Cup pick):

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