I’m Dreaming of $20 Soybeans

2007 has been quite a year.  At its dawn we were just getting used to something I called the “ethanol gold rush.”  Then we saw prices fall on March 30th after the market realized the American farmer was intent on growing a lot more corn.  Add the Canadian dollar’s rise and fall into the mix and we’ve got a year for the ages.  Redefining volatility after this year won’t be for the feint of heart.

It all makes me wonder have we seen a real “paradigm shift” in the grain markets never to go back to the dog days of the past?  Has the market risen to new price levels, which will now act as the floor going forward?  Or are we simply on the abyss looking over a price world yet to explode to levels, which at one time were only the stuff, dreams were made of.

On December 13th March 2008 corn futures finished at $4.35/bu, January 2008 soybeans at $11.46/bu and March 2008 at $9.53/bu.  No, I’m not a science fiction writer, far from it.  However if you had told me about prices like this a few years ago, I’ve have said you were delusional.  Yes, in December 2007 I’m dreaming about $20 soybeans.

$20 soybeans?  Hmmmmmmmmmm, I’m sure most of you think after my sojourn in Peace river country I’ve finally lost my marbles.  Nonetheless, that figure has been passed around Chicago’s trading floor.  Soybeans have been the sexy market, the idea a bushel of soybeans being worth $20 is akin to the way we used to think about a par loonie.  Wait a minute.  That actually happened. I digress.

Being in the grain prediction business is much like being in the shady, blue light, dark curtain crystal ball business.  The intrigue is palpable, the reality is often much different.  Getting caught up in the hype is sometimes like a self-fulfilling prophecy.  If you believe it will happen, it will.  However, we all know in this present day grain environment it simply doesn’t work like that.

What we’ve got is a demand market, one in which some new demand comes into a market to push prices higher.  For instance, in the corn market ethanol has made a tremendous difference.  In the soybean market the push globally for biodeisel and the increased demand for soybean oil and soy products from China are pushing prices.  Of course there is always the “offset” between acres of this versus acres of that which adds to price movement.

Wheat on the other hand is cosmic.  I talked to one southwestern Ontario farmer today who told me he had most of his wheat booked for next year at $5/bushel and the year after.  That’s’ crazy money historically for Ontario wheat.  However with new crop wheat trying to push over $7/bushel, he’s not feeling so good.  I told him to be happy and put it all in the rear view mirror.

I’d like to say take it from me.  Remember, I grow the grain and pay the fertilizer bills and actually take positions in the grain market.  There is the soil of southwestern Ontario firmly embedded under my fingernails.  I think a dollar in hand is a dollar better than a theoretical dollar somewhere out there in the grain complex.  The temptation to cash in every bushel is great.

How about if there is severe drought next year in the American Corn Belt?  How about if there is a catastrophic outbreak of soybean rust both in South America this winter and next summer in central Iowa?  What if China starts to buy copious amounts of US corn?  What happens if the US dollar index continues on its merry way down the path of no return?

Questions like that are easy to answer.  In fact everybody wants to answer them.  However, how about if the American farmer out foxes the experts and plants 94.2 million acres of corn next year and harvest 14.5 billion bushels?  How about if high prices for grain and oilseeds severely ration demand in 2008 while at the same time the heavens open up over southwestern Ontario.  Hmmmmmmmmm.

There is so much risk when prices are historically high and the prevalent mood is we are about to break into price territory nobody has ever imagined.  What is the farmer  who makes the production and marketing decisions suppose to do?  I don’t know.  However, its pretty clear to me we’re heading into some pretty rare air, in fact we’re already there in wheat and we might be on our way in soybeans and corn in 2008.  If you thought 2007 was wild, 2008 may prove that none of us know what wild is.