Management Plans Never Get Old Nor Does the Road to Louisville

It is a cold snowy place here in southwestern Ontario.  Some of my friends think of February as the cruelest month, because it’s cold and snowy and spring seemed so far away.  It is the month that I like to travel to Louisville Kentucky to take in the Super Bowl of agriculture.  However, this year the stars are not aligning again.  So I find myself spending my days going over my farm business budgets trying to find a way forward at a time when commodities have lost much of their favor.  I think it would be a lot more fun kicking the tires at Louisville.

Of course the story of the year with regard to Canadian grain prices is the influence of the Canadian dollar.  We’ve talked about that ad nausea in this column.  Last week it briefly fell into the $.78 US level before rallying up over $.80 and then retreating back to $.79 today.  I think we all get that.  There isn’t one day Canadian farmers do not think about the value of the Canadian dollar when pricing their grain.  It is second nature.

So we will take that in this cold February.  Of course the challenge is to find some other tidbit of information that might give us clues to a successful farm year.  For instance I am just like everybody else putting together my 2015 2016 marketing plan.  I never like to get too far ahead of myself.  So I look for clues to the future, and it just so happens that I get to write them in this column.  That proverbial black swan or unexpected Tuesday that I always hope for hasn’t materialized yet.  However, I will keep searching.

There was one such tidbit of information that came across my desk today via the closing market video from DTN analysts Todd Hultman and Bryce Anderson.  The closing DTN market video is a must watch for me every day, as I hope it is for you.  In their latest market video Todd pointed out that there was a boost in the price of palm oil yesterday solely based on speculation that the Indonesian government would be increasing the subsidy for biodiesel there.  The resultant pop in the Palm oil price actually helped raise the price of soybean oil.  It is significant because Indonesia has approximately 246 million people and any change to biodiesel consumption will be substantial for the Palm oil market.  Palm oil can be a direct substitute for soybean oil so the more palm oil you have off the market the better for soybeans.

Similar type moves in other developed countries would help the demand picture for these oilseed products.  Indonesia is one thing with a large palm oil economy.  The problem is in the more developed economies where biofuels are not seen as a panacea like they once were.  Needless to say, as farmers in North America we can always hope that these initiatives in countries like Indonesia catch on.

Other than that farmers can probably only hope for some type of supply hiccup into 2015 as well as the crop cares mix going ahead.  Last year we had 7 million more soybean acres in the US than the previous record.  As corn prices decreased in 2014 into the fall the noise for even more soybean acres in 2015 became overwhelming.  I’ve heard talk about three or 4 million more acres of soybeans in 2015.  However, I simply cannot drink that Kool-Aid.  I’m tending to think now that US soybean acres are likely not to increase in 2015.

What might be more likely in 2015 is a decrease in crop acreage in total in the United States.  That came from my friend Dale Durchholz, a commodity analyst in Bloomington Illinois.  Dale has written extensively on the subject.  In our correspondence he has related to me decreases in US acreage after some of the set-aside programs of the 1970s and 1980s.  Much depends on US crop insurance values being set shortly.  It’s an interesting debate and one somewhat difficult for Canadians to truly understand.  We don’t have the same types of crop insurance stimulus to aid our production plans.  However, the idea of less total crop acres in United States in 2015 is very compelling.  That might mean lower expectations with regard to acres at the end of the day for both corn and soybeans.

All of those variables will have an impact on cash prices in Eastern Canada.  Yes, the low loonie is our cushion from what could have been.  As we look ahead some of these market factors will rear their head and give us the marketing opportunities that we desire.  The challenge for Ontario and Quebec farmers will be to measure where they are profitable, while anticipating those Indonesian biodiesel surprises.  The road to profitability, which finishes on some golden harvest afternoon in November, is straightforward.  Constructing the budgets and working the plan are all part of it.  Enjoy that Louisville excursion.  I’ll be back here working my budget spreadsheets.  I hope to get there next year, because that too, is an important part of the management process.