Running Out of Runway in Europe, China and our Friend Ben

I finally got planted this week.  While Ontario has remained dry, for whatever reason I’ve been dodging raindrops trying to get my crop in.  So as I wrapped that up on Tuesday of this week, it gave me a very satisfying feeling.  Now we have the long march to harvest time.

It should be an interesting march toward October.  At the present time 53% of the US crop is growing under abnormally dry conditions compared to 25% last week according to the DTN Drought Monitor Map.  At the same time we had USDA Chief economist Joe Glauber exclaim that, “we should be seeing record yields this year.”  He was referring to corn.  With 95.5 million acres in the ground I could hardly believe what I was hearing.  Or, maybe Mr. Glauber was giving us an omen.  Maybe our US friends will produce a record crop of corn.

We shall see.  Next week on June 12th the USDA will again chime in with their stocks report, but the really big report is on June 29th.  That’s when we will see just how many actual planted acres US farmers put in the ground.  Over the last few days we have seen soybeans explode in price and it is becoming increasingly obvious to me that maybe we planted a little bit too much corn the spring.  Soybean prices may be the beneficiary.

In Ontario I am expecting 2.1 million acres of corn and approximately 2.7 million acres of soybeans.  We have approximately half a million-flux acres in Ontario this spring from what we didn’t get planted into wheat last fall.  The corn hype hysteria machine last spring was in overdrive and I can hardly imagine that much seed corn being ordered again.  Needless to say, I was told by the guy who was delivering my liquid nitrogen this week about the preponderance of corn acres in the neighborhood.  He said that they were way up and I believe him to be right.  Sometimes we get it wrong, and with regard to corn acres the spring I think we’re going to find out that maybe there is more than we expected.  Maybe the USDA’s March estimate of 95.5 million acres of corn is too conservative.

So there are quite a few fireworks ahead in the grain markets, which will certainly keep the temperature bubbling in farm country.  Meanwhile, many of the old problems that we have been talking about seemingly forever continue.  Over the last few days as I have side dressed liquid nitrogen on my corn the satellite radio has been crackling with economic news from Europe.  Our Prime Minister, Stephen Harper has been in France extolling the Europeans to get busy about getting their economic shopping order.  Prime Minister Harper keeps saying that the Europeans are running out of runway.  Is pretty evident that both he and President Obama think European economic problems can make things worse here in North America.

Then this morning I heard one of my favorite press conferences live over my satellite radio.  US Federal Reserve chairman Ben Bernanke filled up my tractor cab this morning with his monthly news conference.  The markets were looking for clues from Mr. Bernanke about QE3, some type of new stimulus from the Federal Reserve to get the US economy going.  Mr. Bernanke said many things, but what I took back was the shot he took it the U.S. Congress.  He said that the Federal Reserve was just one entity and that economic growth and job creation could be helped if Congress could take decisive steps to mend US policies on taxes and government spending.  He said that interest rates could be cut no more and clearly was pointing fingers at the US federal government that he deemed had not done enough.

I came away with the feeling that he was running out of weapons to balance the economy.  It wasn’t too long ago that adjusting interest rates was the biggest lever to controlling inflation, adjusting unemployment and cooling the economy.  However, those days are gone and now the US Federal Reserve chairman is pointing at the US government.  It makes you wonder what is going to happen next?

At the same time this week, China cut its interest rates, which was an admission that the European problem had slowed the economy there.  All in all, when you combine Europe, Ben Bernanke’s statements and China it was a pretty pessimistic week for the global economy.  It makes the reduction in the Canadian dollar and the rising grain prices seem like such good news in comparison.

If you think you can interpret these events minute by minute, you’ve got ice water in your veins.  So as we move ahead in June, it will surely be important to have those grain marketing standing orders sitting at the elevator.  This big picture defines violent price volatility ahead.