Don’t Be An April Fool: Canadian Agricultural Policy Trails Our New Grain Market Realities

So what’s the day after March 31st?  That’s the day after one of the biggest anticipated USDA Prospective Plantings Report ever or at least sine last March 31st.    If you think it’ll be just another Tuesday, think again.  It’ll be April Fools Day and I want to make sure I’m not one of those April fools.

So have you got your puts, calls, basis contracts and your tight underwear ready?  Will we have 90, 88, 87 or lord help us 84 million acres of corn going into the ground?  Will the soybean number be higher than anybody expects, like 75 million acres.  With increased trading limits, it won’t be for the feint of heart.  Throw this goofy snowy Canadian weather in the mix for some delayed planting and the next few weeks for market watchers might be better than the NCAA Final Four.

I know.  I’ve just added to the hype of it all.  Take it from me.  Whatever happens this year, it is unlikely we’ll have enough of everything.  However the events of the last few weeks in our financial markets have shown us there is much more playing out than simple supply and demand.  As our American friends continue with their cash crunch, Monday’s report will certainly be a show, but not the high wire circus still masquerading within the sub prime mortgage mess.

That unfortunately is still causing much angst in our cash markets.  Nobody wants to be an April fool post report, but the cash crunch I talked about last week isn’t going away.  Marketing our Canadian grain will continue to be a challenge.  When I say challenge what I’m talking about are all the extraneous variables we once never thought about.  It is surely possible this year with all the potential volatility cash markets might get even tighter going forward.  Farmers may be put in a position of marketing grain to buyers who may act like they are being choked to death by margin call.

With that as a backdrop, let’s leave it for next week.  Our new grain-marketing environment is one thing, but our Canadian agricultural policy world is another.  The problem is our policy world has been completely left behind by a grain-marketing environment completely new.  Most farmers never saw this coming, so it’s pretty hard to blame our government bureaucrats for forging a policy, which has essentially been left behind.

Take Ontario’s Risk Management Program as an example.  In my opinion everybody should enroll.  There was too much gnashing of teeth and too many farm rallies in the past to get cheap now.  The support prices inherent within Ontario’s RMP are much lower than current contract prices for grain.  However, they were forged at a time when nobody could foresee an American financial meltdown, cash markets decoupling from futures and what’s left of the ethanol gold rush.  Adjustments in the future will be coming.  The program has some solid agricultural economics behind it.

Our Canadian livestock sector on the other hand has never had it so bad.  In this new grain marketing environment livestock producers are exiting, sending animals to the US or surviving somehow with government help.  I was even told this week that our American friends might countervail Canadian hogs coming into the US.  The argument is that Canadians are selling hogs under the cost of production and shipping them south.  Add any assistance cheque in the mail from the sow cull program or other livestock assistance and our American friends are crying foul.  Countervail hasn’t happened yet, but it if does, it’ll be a hammer for Canadian hog producers.

Maybe Canadian livestock producers should go on strike like Argentine farmers.  In Argentina the government is taxing soybean and sunflower exports.  Farm leaders called a strike and now there are shortages of meat and some dairy products.  Local grain and livestock trade has stopped.  It’s actually had the effect of raising US soybean cash basis.  However, all those Argentine markets are being “stolen” by their Brazilian and American counterparts.  Not good.

At the centre of this Canadian agricultural policy world is Gerry Ritz, Canada’s agriculture minister.  If you think he’s been absent from these pages unlike other agriculture ministers like Strahl, Mitchell, Goodale and others you are right.  His tenure has been uneventful other than some livestock assistance.  His exploits in goading the Canadian Wheat Board have yet to play out.  With the current cash crunch in grain markets, the CWB standoff can only get more interesting.

In the meantime, we may see corn going up or down its new limits of 30 cents.  Soybeans may go up or down its new limit of 70 cents.  There will be some April Fools.  However, our Canadian agricultural policy world will go on.  The hard part will be getting it to adjust to our new grain realities.  At the present time, it’s a million kilometers behind.