Let’s Temper Our Heightened Expectations, $7 Corn Was One Sided

USDA Reports JPEG     Oh, how we love the USDA.  This past Wednesday the USDA released its latest WASDE report and with crop actively growing across Canada, the first of these June USDA reports resonate across farm country.  On June 28th the USDA will weigh in again with their opinion of US yields and acreage.  The June 12th USDA report was a warm-up act for that coming event.

Markets reacted somewhat on the bearish side before the release of the report and it continued on Thursday.  The USDA actually reduced the expected corn yield by 1.5 bushels per acre citing some of the planting delays that we have seen in the Western corn belt.  Feed usage actually declined by 125 million bushels, with ethanol boosted by 50 million bushels.  On the soybean side of the ledger the USDA didn’t change one thing from their May report, juggling the numbers to keep the ending stocks above the magic mark of 100 million bushels.  It is setting up for one of those big crops that we used to have and that many expected in 2012.

Of course last year we all know what happened.  We had the worst drought in US history and prices went skyward.  It is been no secret for quite some time now that the new crop price projections were much lower than anything we experienced last year.  Needless to say, I find many people don’t seem to get this, or they are somewhat delusional when it comes to the specter for a big crop ahead.  I’m expecting a big US crop pushing ending stocks for corn and soybeans higher than we have seen in quite a few years.  I realize all the production problems we have had this spring in the United States, but I do not expect another 2012.   I expect lower prices for grain, possibly to the point where we build back some real demand again.

That is not earth shattering when it comes to musing about our agricultural economy.  In fact, you might say that it is normal.  For those of us who have been farming for 30 or 40 or even 50 years, we have seen some very unprofitable times and have lived to farm another day.  Just this morning I saw a quote from one of the myriad of agricultural economists saying that they expect continued prosperous prices for grain markets into the future.   I think such thinking is delusional at best and it’s something we have to come to grips with.

What is clear to me is we have a new generation working on Canadian farms who’ve never really experienced unprofitable times.  For instance, it was only 7 short years ago, when farm rallies were taking place across Canada in the hope of garnering a better agricultural safety net by governments.  It was a time of unprofitable projections in Canadian agriculture and world grain markets.  However, it was not the first time and many of us who were there had managed our farms through unprofitable years many times before.  So as we look ahead, I’m not necessarily saying that 2013 will be unprofitable, but it could be.   That’s the nature of our agricultural economics.

All of this is currently being mitigated by a less than desirable spring in Ontario, where heavy rain, frost and a few other maladies are making this year’s crop quite a challenge.  In my opinion, at the present time the Ontario crop isn’t what it was in 2012.  With new crop prices the way they are, this means less revenue for everybody.  It’s all-relative though, because last year was such a good year.   There’s a lot of production risk looking ahead.

As it is now, almost everywhere but here conditions are good for global crops.   Acreage has increased almost everywhere for grains and the supply is much greater than it used to be.  Having said that, the June 12th WASDE report reduced both the global old crop and new crop ending stocks for both corn and soybeans.  That’s $7 corn did not lie last year.  Essentially, those higher prices have spurred growth in global grain production almost everywhere.

The goal of governments is still the same and that is to keep food as cheap as possible.   Part of that equation is producing big global crops at prices, which are sustainable for producers.  If that is $4.50 corn in Ontario and Quebec, that’s what it is.   With interest rates still super low, maybe that still works.   I remember the days, where if I had written that, I would’ve caused a riot.  It was the stuff that dreams are made of.

The challenge of course is recognizing the up and down, cyclical nature of our agricultural economics.  It is no secret that farming and farm prices are always a roller coaster of a ride.   Let’s be practical and realistic. $7 corn was a bit one sided and most of us couldn’t even imagine it happening 12 short months ago.  Let’s temper our heightened expectations and get this crop successfully to the finish line.