One of the greatest challenges of grain marketing for the Eastern Canadian farmer is balancing the values of a Canadian dollar basis with the futures price generated in Chicago. It’s almost like a two-headed monster. I have emphasized over the years as Canadian farmers we have to think about those things equally especially at times when the Canadian dollar value is volatile. That’s pretty well all the time. At least it seems that way.
I can see that even more so when I tour Ontario. This past week and next week I will be touring the province on the behalf of BDO Canada taking part in their agricultural roadshow. The theme of the roadshow is risk management. I talk about our marketing risk, while others talk about the tax risk and production risk. Much of my presentation has to do with how the Canadian dollar at approximately 75 US has cushioned the blow of low agricultural commodity futures prices this past year.
Simply put, a lower dollar creates price optics in Ontario and Québec much different than our American friends. For instance I kind of laughed when I got home this afternoon and saw my DTN colleague Darin Newsom mention his preparation for his market outlook presentation in Chicago next week. He said he needed a drink or some anti-depressants. I tweeted back on twitter that if he did it in Canadian dollars, it didn’t seem all so bad. That is exactly what is happening this week as I tour Ontario. Canadian cash values for grain have good optics, even though it’s a mirage. American made goods like tractors cost us more.
I wish Darin well with that. Someday I hope to be in Chicago to listen to him. Of course it is so different on the side of the border. The mood everywhere I have spoken in Ontario is quite good, partly because the crop was much better than expected and these price optics provided by our Canadian loonie are working. The rooms are no longer full of older people; in fact, there are much younger people in the audience.
Invariably, I am asked about the price of corn and soybeans. My answer always is I have no idea where price is going on these commodities. I simply discuss the market factors that we have and look at options for measuring how this might impact the market price. Nobody knows where prices are going and I am certainly a farmer first, not paid to muse about my random thoughts of what I hope the price might be. However, I still get asked. Increasingly I am modifying my comments. I like to say market where you are profitable and comfortable.
That means consider where you are comfortable with the Canadian basis aside from where you are with futures prices. Typically, the value of the Canadian dollar moves in the opposite direction of grain futures when those futures are in the sideways pattern. That is exactly what we’ve been in for quite some time now in wheat and corn. At the same time when the US dollar goes up, generally the Canadian dollar goes down.
So I say pick the cash grain price target that best reflects your comfort level when the time is right for both the Canadian dollar and futures value. It is never perfect under that scenario, but its unlikely it will ever be in the pricing environment we constantly find ourselves in as Canadian farmers.
So if $13 soybeans makes you comfortable and profitable, so be it. If $14 is a better idea or $5 corn, get those standing orders ready. Market conditions are very fluid; you have to compromise and change. Daily market intelligence is key.
Daily market intelligence means absorbing yourself in market factors. Just being a DTN subscriber is part of that. A filtered Twitter can also be an excellent vehicle to finding out what’s going on with crops and prices just about everywhere. Standing orders are an important part of the process. Pull that grain sales trigger and then never look back.