Out with 2011: What Monkey Wrench Will Come in 2012?

happy-new-year 2012Retrospect sometimes is a tricky business.  As we end 2011, it’s no different than any other year that way.  We think we can see into the future after recapping the past year.  Invariably, something comes along which throws a whole monkey wrench into everything.

From my vantage point in southwestern Ontario farm country there were two things this year aside from the weather, which really changed shook our agricultural lexicon.  One was the elimination of monopoly pricing power for the western based Canadian Wheat Board and two, the quick exit from the grain markets of the noncommercial speculative funds post August causing widespread drops in prices into Christmas.  There were many other events related to this, but those two hold the most 2011 water for me.  In 2012, we’re still watching to see how things turn out.

The seminal moment in the emasculation of the Canadian Wheat Board in 2011 came on May 2nd.  That was the day when Stephen Harper finally got his majority in the Canadian Parliament.  With the political way finally clear to get rid of the board’s monopoly power, it was only a matter of time before it was done.  Just before Christmas, legislation was passed to get that done and that collective sigh heard over Western Canada were CWB opponents expressing relief.  It’s been a long time for those folks to wait for the demise of the CWB and they are finally getting it.  The political opposition to it among the Liberals, Bloc and NDP never made a lot of sense, so with Harper elected, it was a fait accompli.

Opinions about the CWB are visceral in Western Canada.  Invariably, I was asked my opinion several times and I gave my standard answer, “that it was a western issue and not a concern of mine.”  Needless to say as the legislation got farther down the path of reality, it turned into a real western gun slinging, name-calling, fist fight, as opponents and supporters of the CWB went at it.  Minister Gerry Ritz seemed to revel in his victory.  It meant nothing in the East, and he’d better lose his swagger when he comes this way.  However, with the dust settling over the issue in Western Canada, marketing freedom is here.  I just hope my western readers realize that marketing freedom equates with marketing responsibility.  That’s what it all about in Ontario.

Interestingly enough, my western friends will surely be hoping for the return of noncommercial speculative interests to pour their billions back into agricultural commodities in 2012.  The exit of these spec funds from the grains since August 2011 was a major seismic event in 2011 prices.  When the European debt contagion grew larger with no apparent out, large speculators put their money into US securities causing a rise in the value of the US dollar.  The exit from grains into US government securities was like pouring gas onto the bonfire.  One fed the other pushing down agricultural commodities prices.  As we get to the last few days of 2011, there has been a bit of reversal of trend.  Everybody in Eastern Canada are sure hoping it continues.  The new “speculators in the grains” are friends to the farmer.  Add a little bit of marketing responsibility into the mix and over the last few years, its been adding up to increased profitability.

So as we march into 2012, it’s ditto for western Canada.  Sure, we can look at grain fundamentals, but now that the CWB is gone, its more “our responsibility” to measure in our own mind the strength of noncommercial specs in the market.  They are key and the faster everybody realizes it, the better.

A third factor in 2011, which was big, had to do with a less than perfect American growing season.  In the next couple weeks we’ll find out from the USDA just how much corn, soybeans and wheat came out of those actual harvest fields in 2011.  However, in the meantime, we know the hot and dry in much of the US Corn Belt in July and August reduced corn yields substantially from projections last January.  That realization started to take place in June, July and most of August of this past year.  It made for the volatile situation in grains that much more acute.  Nobody likes a bad crop.  Unfortunately, part of the big run in prices last year, fell squarely on the backs of some unfortunate American farmers.  I don’t know if that’s going to happen again.

So what’s in store for us in 2012?  Oh, the quintessential question.  We know we need more corn and we might even need more soybeans if South American weather continues to be fickle.  Of course the question is what else will we need?  I’m sure rain will still make grain in 2012.  I don’t know if the large speculative interests will be back.  A pricing environment with a buoyant US dollar might spoil that.  However, who knows.  2011 challenged us all.  2012 will probably be no different.