Manitoba Floods, Food Prices and Fickle Commodity Demand

Manitoba Farm CountryI got a call from a CBC reporter today concerning the floods in Manitoba.  In Canada, you cannot turn on the television without seeing the flooding in Manitoba farm country.  This is no time for the faint of heart.  The Prime Minister viewed the area yesterday and lamented that the whole province of Manitoba is wet. For those trying to get crop in the ground, it must be very discouraging.

Over the years, I have received quite a bit of mail from Manitoba farm country.  Much of it had to do with poor growing conditions in the Interlake area of Manitoba, which is much farther north than the affected floodwaters in the South.  People surely deserve a break there.

I got the call from the CBC reporter as I stepped out of my tractor to make an adjustment on my land cultivator.  For whatever reason I left the phone in the cab when the call came in.  It happens to me sometimes, I get these random phone calls from national reporters.  The question was how would the Manitoba floods affect food prices?  Of course the answer is the Manitoba floods will not affect food prices whatsoever.  So when I explained to the CBC reporter that the production area in Manitoba is too small to affect commodity prices based on a production short fall through flooding, it was like I spoiled the party.

It was obvious from the reporter’s question that somebody had decided that these floods were behind higher food prices.  It was an example of how ridiculous some perceptions of food prices can be.  Needless to say, as I made round after round in my tracker today, I didn’t hear my points about the Manitoba floods.  It seemed that maybe the reporter didn’t think my agricultural economics lesson regarding floods and food prices was sensational enough.

I explained to her that the price of wheat had fallen $.41 a bushel the day before her question and another $.27 today.  So much for Manitoba floods causing problems with food prices.  With gasoline prices hitting a $1.40 a litre in the Toronto area, I would think the CBC mother ship would be able to drop the food prices and start talking about oil companies making exorbitant profits.

It’s interesting.  I have a friend who has a bottled water dispenser as part of his business.  He fills bottles for $.11 and turns around and sells them for $3.  Consumers can’t get enough of that but when it comes to things such as gasoline and food prices, it’s like we raise the optics to another level.  Society clues in and it’s a story.  Meanwhile, society pays through the nose for something like bottled water and nobody seems to care.

Clearly though, when it comes to our commodities somebody must be caring.  The May 11th WASDE report took an unexpected turn when they increased the corn ending stocks to 730 million bushels from the 675 million bushels we had in April.  The stock’s to use ratio is still a very tight 5.4%, but clearly corn users are putting the brakes on.  The USDA also decreased 2011 trend line yield to 158.7 bushels per acre, down from 162 from March 31 report.  It’s pretty obvious that the late start versus last year has dampened USDA expectations regarding the corn crop.  Corn went limit down on the news.

At the same time, commodities were losing a little bit of their luster, as oil declined down below $100, along with similar declines for gold and copper.  The big blob of global money which has been so infatuated with agricultural commodities seems to be growing much more fickle as 2011 is wearing on.  There is not a lot of upside potential to already overpriced agricultural commodities.  The stock markets have benefited from that.

The question is where does that put the Canadian farmer now firmly ensconced on his tractor seat?  With the high prices of the past winter in the rearview mirror, is there any hope in our present commodity fiscal environment to see greater returns ahead?  Of course we all know what “hot and dry” will do to the corn and soybean market come late June.  So if you have ice water in your veins and haven’t sold a thing all winter and fall, you’ve got more moxie than me.  It’s pretty obvious at the present time; the froth on the commodity root beer isn’t so robust.

Still, emerging markets have a hunger for commodities that isn’t going away.  Sure, higher interest rates here and in places like China should give us the jitters.  All of that is in the news.  The challenge for Canadian farmers as we follow those guidance lights is to have our marketing plan in place.  Leading up to July 4th will surely be one wild ride.