It is the night before USDA releases another WASDE supply and demand report for July. Sometimes deadlines aren’t convenient and this is surely one of those times. As the June 30 USDA planted acreage report was a bullish surprise, tomorrow’s stocks report may be the second shoe to drop. It almost seems we’re at a tipping point, with prices poised to move either way.
In Canada we have the tail of two stories. On Wednesday of this past week we had Prime Minister Harper touring flooded farmland in Saskatchewan.  That was followed by agriculture Minister Ritz announcing that $450 million would be on its way to help producers affected by excessive rainfall. It doesn’t matter how you cut it in Western Canada this year has been difficult. The money flowing to Western farmers will boil down to about $30 an acre and will be delivered through the Agri-Recovery program.
Of course it is not all bad in Western Canada. For those who do have a crop like those in the Peace River District of Alberta one man’s misfortune is another’s benefit. Ditto for others across Western Canada. Increased prices for canola will surely benefit those who dodged the rainfall bullet.
The other story for crop production is in Eastern Canada where the Ontario and Quebec crops look good going into tomorrow’s USDA report. Yes, you could argue that much of southern Ontario crops are dry or even parched. If that continues for several more weeks it will change the equation entirely. If we get timely rainfall soon it will mean that crops in eastern Canada will be very good this fall. Yes, that is a big if and you can bet if it remains dry, eastern Canadian farmers will be looking for some type of commitment from Ritz to satisfy them. Needless to say his press conference last week in Saskatoon was bereft of any policy initiative such as Agriflex advanced by Ontario and Quebec.
At the same time as the USDA releases their stocks report there is some consternation in production areas around the world. There are drought problems in Europe and Russia as well as Australia. It seems there are drought problems almost everywhere except the US Corn Belt. This had added nervousness to grain markets over the last week. The futures spreads for row crops still do not reflect bullish sentiment. However if the USDA comes out with stocks figures on the low side tomorrow all bets are off. Of course, the problem is the numbers are the problem.  More specifically, the way the USDA handled the 2009 crop numbers has been the real puzzler.
The problem is if you have something bad going in you have something bad coming out. I think somebody who invented computers made up that statement, but it also has to do with ending stocks. One years ending stocks is another years beginning stocks so when that changes unexpectedly, the fundamentals of grain gets skewed. In July 2010, that is exactly where we are.
Into this mix you need to add the China card. Despite predictions of increased corn imports in the next several years to almost exponential levels, we really don’t know if that’s true or not.  If it is true, it will tighten our grain situation substantially. That, along with any production shortfall in North America will certainly change the price equation. The question is are there any end-users for corn and soybeans that might be worried about it? My experience in the industry tells me they are not.
At times like these I often think of one analyst who asks the question, “What is the price of the last bushel?” In other words if there was only one bushel left in the world, how much would it bring. At the present time in Ontario that is about $3.60/bushel for corn and buyers seem to be getting lots of it.  So despite what some people may deem to be a bullish surprise last June 30th and maybe a bullish nudge tomorrow, it seems to me the market is not worried.  What you need to do is hope for rain and then let the chips fall as they may.
Letting those chips fall may surely be in a new marketing environment next week. Combine that with production figures that usually drop during the summer and we’ve got the setup for something big. The key will be to see if production can keep up with disappearing ending stocks and end user hubris.  10 days ago the conventional wisdom was caught leaning the wrong way in the market. Maybe tomorrow we’ll see by how much. I only hope the USDA doesn’t have another head fake in its arsenal.