Puzzling Circumstances May Come Together For Better Times Ahead

In my part of Canada soybeans are just about ready to take off.  In fact some early fields have seen combines rolling.  Yields look quite healthy.  Soybeans, the poor boy of our commodity world didn’t have many challenges this past year. No aphids, plus no rust and ample rainfall added up to a good soybean year for southwestern Ontario.

If you had to choose, I think we’d all choose a year when we had a good crop and good price.  However price takers can’t be choosers, so we’ll take a good crop and poor price over a poor crop and poor price.  Believe me, I’ve been in the later situation.  It isn’t for the faint of heart.

The question is are things going to change.  Is a good price coming for our commodities?  Is there a new agricultural safety net on the way?  Is the Canadian dollar set up for a swoon buoying increased cash prices?  Is the supply train wreck in the corn market in 2007 rubbing off in the present day futures markets?  Does the CAIS re-evaluation announced earlier this year make real sense with cash hitting the road?  Does Ontario Premier Dalton McGuinty have it right by piling on?

For Canadian farmers in the fall of 2006 cash is king.  Getting it is the problem.  Cash markets are reflecting an 89/90-cent dollar.  This almost more than anything else has taken the wind out of Canadian cash grain prices.  Farmers had gotten used to a 65, 75, 85 cent dollar over a period of ten years.  Dealing with a currency, which rose 41% over a four-year period has sucked the life out of cash prices.

Is the loonie going to lose some steam?  Some might say it already has.  Oil prices backing off to $63 plus a general decline in commodity prices are negative for the loonie.  Add to that a softening American economy with a widening gap in US/Canadian interest rates and you have an environment for the loonie to start retreating.  My local Lambton County Ontario currency guru needs to chime in.  Needless to say, a loonie backing off to 85 cents would help.  It would give cash markets the needed testosterone to start kicking.

Corn prices have increased almost 30 cents since September 12th.  Yes, that includes a big 10-cent move today, but clearly the train wreck is coming.  We’ve all heard that we need more acres for 2007.  The recent moves in corn reflect this and the realization that more acres won’t necessarily happen without significant price appreciation.  That might represent a train wreck to corn users, but not necessarily for farmers.

It begs the question can soybeans and wheat catch some of the hype surrounding the ethanol gold rush in corn.  Right now wheat can be contracted for 2008 in Ontario for $4.15 bushel.  For 2007 it can be contracted for $3.85 plus.  With 100-plus bushel yields becoming more common in Ontario wheat country, switching these acres to corn becomes increasingly unlikely.  Ditto across the US.  Soybean prices being the dog they are, maybe they will lose acres to corn.

For Canadian producers all of this is still very much a theory.  Many of us are surely looking toward that $1.5 billion dollar promise from the federal Conservatives last May after the big farm rally.  Last week Premier Dalton McGuinty dumped some additional money ($110 million) into the CAIS program.

For the naysayer, remember what I said last May 18th about the proposed CAIS re-adjustments regarding inventory levels.   Quoting from my column that day.

“Soybeans are a good example because the Ontario average price for soybeans was recorded at $9.74 a bushel at the end of 2003 and at $6.12 at the end of 2004. A farmer with 10,000 bushels of soybeans at the beginning and end of 2004 lost $3.62 per bushel or $36,200, which was not recognized as a loss by CAIS because it was “unrealized”.  My understanding of the new re-jigged CAIS adjustment proposal is to correct this shortfall with the 900 million dollars.  In my opinion nobody will be receiving a dime “before the snow flies”. (Agridome, May 18, 2006)

I still stand by that.  Now with provincial money it should be more significant.  My question is when is it going to snow?

Maybe it’ll snow on the weekend of December 2nd.  That’s when the Liberals will elect a new leader to challenge Stephen Harper.  Maybe at that event they’ll also be talking about their new Liberal agricultural policy.  In short they are going to restructure CAIS using a cost of production formula, create a separate disaster relief program and give federal support to provincial companion programs like the Risk Management Program in Ontario.  Chazzan, what happened to them?

I’m reeling so much from that last paragraph I don’t know what to say.  However, politics aside, there are always immeasurable amounts of doom I could spread around about Canadian agriculture.  Remember, it’s the nature of our agricultural economics.  In our present torment it is important to keep in mind, there are glimmers of hope.  As combines roll this week keep in mind those times are drawing closer.