Lower Prices And Shifting Sands Under Canadian Ag Safety Nets

Can Ag Policy Crossroads   In the US it is a growth industry.  I’m talking about crop prognostication.  At the present time many of us are watching the Pro Farmer tour, where various journalists and commodity analysts are touring through the American corn belt estimating yield for corn and soybeans.  Before and after that tour of course the USDA always weighs in on crop estimates.  Needless to say if you are on twitter, you’ll know crop estimates are some of the most widely debated topics.  It’s all a guessing game, but it surely keeps people interested.

In Canada I like to think we guess, just like they do in the US.  However, I think its much more sophisticated than that especially this year with Agriculture Canada using satellite data and crop mapping becoming more of a rage.  Our numbers aren’t nearly as dramatic as US numbers, but every August Stats Canada releases their estimates for principal crops.  This year showed just how mighty corn has fallen in Eastern Canada.

In Ontario this year Stats Canada pegged corn acreage at 1.87 million down from 2.21 million last year.  This will put out a production of 295 million bushels at an average yield of 157.8 bushels per acre.  Last year’s Ontario corn yield was 160.5 bushels per acre.  Soybeans acres were incredible coming in at 3.03 million acres, up from 2.495 million acres last year.  The crop is almost made in Ontario, we’ll see if we get that wide-open warm fall we need over the next 6 weeks.

In Quebec, corn production is also down to 857,500 acres from 1.013 million in 2013.  Quebec soybean production increased to 836,500 acres from 710,400 acres last year.  For both Ontario and Quebec this is an end of a 4-year trend where corn production was increasing.  2014 represents real change in a retreating corn production, but surely also in basis values.  Less corn production over time in Quebec and Ontario means increasing corn imports and higher basis values.  However, as fall approaches, the harvest glut always gets in the way.

As it is, new crop values offer little margin for Ontario and Quebec farmers.  That is the cash side of the market; it’s a big difference on the livestock side, where cheaper corn is welcome.  However, that mettle might even be tested.  When corn was $6/bushel two years ago, more than one pork producer told me they were fine with that.  They told me it kept everybody else out of the business!  Of course now the quickest way back to $7 corn is through a hog.  However, I doubt we’ll see that much of a herd expansion in Ontario and Quebec.  It’s not as easy as it once was and even if it were, it would take time.

Of course we all know the world will change for Canadian farmers if the loonie drifts lower.  I wrote about this last week and in many ways it is the great constant.  If the loonie drifts down into the 80’s cent US range, corn acreage may stabilize and the world might be good again.  It is a bit of an illusion because we’ll all be poorer, but cash prices might actually rise.  The challenge then will be to raise our agricultural productivity even higher.

At one time in this column (and in my life) agricultural safety nets, revenue/income stabilization policies were discussed almost every week.  As many of you know I helped lead the protests marches of 2005/06 against a federal government that wouldn’t listen to farm demands for better business risk management programs.  As prices rose in 2007, much of the momentum of those wars was lost when prices went up.  However, farm groups maintained the vigil and the demands remained. The provincial government in Ontario responded but the federal government did not.

It’s an issue because as of now, we don’t have the agricultural safety net we need to deal with lower grain prices.  On the other hand, the ground has shifted under our feet as low interest rates and very high farm land prices makes widespread safety net payments to farmers much less politically palatable.  If fact, I think things have shifted so much its literally impossible.

That’s tough, especially with our American friends having their own “ARC” program to stabilize revenues.  Of course it brings back memories of “cheap American corn” choking our own ethanol plants.  Yes, I used to yell that at farm rallies and it always go the biggest response.

So as we move ahead these crop tours are surely fun, but combines and futures spreads will determine real crop yields.  This new era of bearishness is not reminiscent of the last time the corn price went below the cost of production.  The politics has changed and so has the valuable earth below us.  As I’ve said many times, the only constant in agriculture is change.  In 2014 we have that in spades.