The Missing Link to Grain Demand

USEcon
It has been a long slog through this harvest season.  When I think back on the growing season of 2009, it started late and then of course we got a cool almost cold summer and the benediction on this growing season almost seemed a fate accompli.  When you don’t have any harvest started by Thanksgiving weekend in places like Ontario, it seems like you’re behind the eight ball off all fall.  That’s where I find myself and certainly many of my farmer colleagues throughout the greater American Corn Belt.  The crazy fall of 1992 comes to mind.

What happened that year in Ontario was very wet corn and some of it didn’t black layer.  We had spot fall basis values on corn of over one dollar with the futures price being two dollars.  So you had a cash price or the basis was actually half of the futures price, crazy situation for a crazy year.  I know as I sit here now staring Halloween in the face, I’ve thought many times whether the corn basis is going to go wild this year in Ontario.

I’ll worry about the corn basis a little bit later.  As of now the corn coming off in Ontario is very good although very high in moisture.  Harvest reports I’ve heard in my local area near Dresden Ontario have corn yielding 200 bushel plus and moisture in the 28% to 30% range.  So you open up the wagon door and have the corn come out and the rest of it just looks at you.  With rain coming again tomorrow, it is just setting up as one of those types of years.

It just so happens your loyal scribe hasn’t dipped into his corn yet.  Believe it or not I have soybeans left in the field, which need to dry down naturally for me to garner my IP premium.  I think a lot of people are in the same boat as I see many soybean fields dotted throughout southwestern Ontario.  I never liked harvesting soybeans in November but I’ve done it many times and it looks like this year will be one of those.  As I told my twitter followers today, I’m hoping next week has weather like the middle of August.

When I said that one of my editors reminded me that it rained all through this past August.  So scratch that.  The story has not totally been written on the fall of 2009 and because of that market action will continue to be volatile.  In fact there might be some market opportunities for us here based on all this volatility and uncertainty over harvest conditions.  Localized spot basis spikes combined with futures movement along with the volatile Canadian dollar may provide us with the opportunity to market both this year’s crop and 2010.

Of course marketing for 2010 would be quite a risk at this stage.  But let me remind you that my colleague Darin Newsom was musing about soybeans in the six-dollar range last week.  That’s enough to give almost all of us in Ontario farm country a bit of heartburn.  With our higher costs of doing business these days there is no way we can go back to the bad old days.  So when I saw that the American economy was finally showing signs of life this past week, it gave me a bit more confidence that agricultural markets might have some long-term support pushing underneath them.

It surely is the missing link for grain demand.  We found out this past week that the US economy grew at 3.5% from July through September.  This is the first positive growth in the US economy after four straight quarters of negative economic activity.  So if you take corn for example where USDA pegs demand at 13.030 billion bushels with the corn crop currently sitting in the mud water and snow, this renewed economic activity can only be positive for corn futures prices and demand.  This huge demand was predicted in the depths of the biggest US recession since the Great Depression.

It makes me wonder, “What’s up? “.  Last week, for instance, on twitter I was hearing about this “disastrous” US corn crop. I was incredulous when I heard that, what about 13 billion bushels in the field?  It was almost like the crop wasn’t there and now with this renewed positive US economic growth, demand would only get stronger and price would only go up.

Does it mean for $4 cash corn off the combine this fall or does it mean $5 cash corn this February and maybe $6 cash corn come June 2010?  Okay, I’m getting silly.  However keep in mind the missing link in grain demand has been the US economy not firing on all pistons.  The key will be to keep the US economic recovery going and translate this into renewed grain demand.  It’s about getting our mojo back.  With this terrible 2009 fall weather continuing are we setting up for the perfect marketing storm?  I dunno.  However I’ll take a healthy US economy.  Were not there yet but were pointed, at least for the moment, in the right direction.