In my Market Trends commentary I often refer to spring and summer weather. I don’t have to tell you why, as farmers read this column and we understand oh so well. The last few days I’ve been dancing around raindrops trying to get my soybeans sprayed. The weather forecast is calling for isolated thunderstorms everyday. I don’t have a lot of choice. The wet spring has pushed me back into July and my soybeans have to be sprayed. So I take calculated chances, it’s a bit like spraying roulette. I hope my selective herbicide gets its rain fast interval in before the heavens open up.
As many of you know it is been a very tough spring in southwestern Ontario. Heavy rains have come at the worst time for some emerging crops. We have had lots of replant in this area as well as crop disasters from flooding. I hear every day on Twitter about bad crops throughout the United States. Meanwhile, both the USDA and Informa are telling me that we are in for some of the biggest crops ever grown. Informa is saying 14.26 billion bushels of corn versus 14.005 billion bushels of corn from the USDA. Informa is saying 3.376 billion bushels of soybeans versus 3.39 billion bushels from the USDA. We’re talking history here if the huge crops get to the finish line.
When I drive through my fields it is not a good news story. I see water damage everywhere and pretty well all of it out of my control. In other words, there was nothing I could do. This is farming. Sometimes you win and sometimes you lose and sometimes even when you win you lose. Mother nature is a great controller of what happens to me and in 2013 that has surely come to fruition. Ditto for a lot of other people, so where are all these huge crops coming from?
I think they are real? I have farmed too long to think that my production problems might be manifesting themselves right across the US Corn Belt. I’ve said many times that this is not the 2012 production season. Wet holes are what they are but believe it or not they eventually dry up and those crops that survived are pretty good. We do not hear of any crops burning up with heat like we did last year. Sure, there is still time for that, but nothing in the long-range forecast is telling me this hated dome of heat is coming.
Does that mean we’re going back to a time when the price of corn is going to be under the cost of production? Does that mean there were going back to the time when farming was consistently unprofitable? Or does it represent normalcy in agriculture something that may be over the last few years we came to believe something much different? Or is this a momentary blip, one production season away from that $8 stonewall we once mused about regarding corn demand? Or is that all of the above?
I remember very clearly a question I got from a farmer north of Toronto last winter regarding falling corn demand. I had said something about we had lost 1.3 billion bushels of corn demand over the last year. He asked the question was it lost or is it just being delayed? I was taken aback by the question, but responded by saying the only way we will get this corn demand back is if price falls enough to start building demand. Of course building demand versus losing demand is a much slower process and maybe right now that’s where we find ourselves.
The good news for Canadian cash grain prices is the value of the Canadian dollar is going down. Simply put, Canadian agriculture likes it when the loonie gets wobbly. The Canadian dollar was .9846 US on June 14th but reached as low as .9451 US on June 24th. That is a far cry from $1.02 an earlier months and it has changed the basis for Ontario/Canadian grains. There are some of my city economists cousins that are saying the loonie may reach $.90 US in 6 months time. If that is true, finding a balance between Canadian cash grain values versus lower futures prices will certainly become a challenge.
Of course, we still have our old challenges one, which is the USDA actually increasing US corn acreage to 97.4 million acres when everybody said it, should be more like 93 million acres. Noncommercial speculators aren’t interested in our current price cycle. And then of course there is summer weather, which last year changed everything.
So the road ahead over the next 8 weeks will surely shape the biggest crop in history. I tend to think this year we will get there. That will eventually foster demand through lower prices, which will eventually change the whole thing around again. Needless to say, I will still look to the heavens like I am today. This script might be set, but it is not written yet. Summer weather holds all the cards.