Geopolitics Keeps Shifting, Farmers Keep Hoping

This week my combine finally shut down as the last six rows of corn went underneath me. It has certainly been an eventful corn harvest here in Ontario as many of you have surely heard about our problems with vomitoxins. I faced those problems load by load and now they’re all behind me. That had to be the strangest corn harvest in my career, every load representing a bit of anxiety as you faced the testing roulette wheel. Now that it’s over, I can focus on the markets and looking forward to a new start in 2019.

I do realize that is not over for the rest of my farmer colleagues throughout Ontario. Snow has inundated much of Ontario and this is making harvest difficult. Its also placing many fields of soybeans at risk of never being harvested. It has certainly been a brutal stretch of weather and we all know the Canadian winter wants its time.

As we go into winter many of us are hoping for some type of trade resolution on the global front. We have been inundated with promises over the last few days post G 20 that we would see a trade resolution between the United States and China. President Trump has issued statements post G20 that China was set to immediately buy agricultural products again from the United States. However, we have not seen a lot of evidence of that and it seems to be whole lot of empty sandwich.

It might be a bit of an empty sandwich, but soybean futures did react in a very positive way post G20 to the concept of trade peace between the United States and China. For instance, the March 2019 soybean futures gained approximately $.75 over just a few trading days in anticipation of China buying United States soybeans again. In sympathy, we saw the March 2019 corn futures go up about $.20 in the same time period, which is akin to an earthquake in the corn market. However, as we head toward the weekend there is really nothing new regarding the United States and China. The devil is in the details and the details are very lacking.

We will take the better markets, it seems like we’ve been in a slump for so long. For instance cash corn prices in the United States are up 46 cents per bushel from the September low and trading at their highest level in the last six months. I don’t know if this is in concert with the possibility of a soybean price rise, maybe it’s just we been down so long it’s time to do better. Ethanol prices are at some of the lowest on record, but US shipments in October were up 75% from last year.

If you have read this column over the last 33 years you’ll know that I’ve often said there is a relationship between oil prices and corn prices, which sometimes is tortuous. Generally speaking, corn prices tend to do better when oil prices are high. Unfortunately, as we all know oil prices have been very low, currently around $51 a barrel, with Alberta crude so much lower. Last week, the United States actually exported more crude oil and fuel that is imported for the first time on record. OPEC is scrambling to cut oil production. With so many new players in the oil market, it’s increasingly difficult for them to get their own way.

This doesn’t bode well for corn prices especially at a time when ethanol prices are so low. However, as it mentioned so many times before, the demand for corn is at record levels. For instance, total usage projected for corn in the United States for this crop year is 15.080 billion bushels. We have kept pace with this demand through better crops year after year since 2012. Corn demand is a bit like a freight train out of control, as long as you add more tracks you get along just fine. However, when the production bubble eventually comes and it will, prices will have to go up quickly to ration that demand and slow down that runaway train.

While this was happening this past week Bank of Canada governor Stephen Poloz chimed in and kept interest rates at 1.75%. He tempered the oil price slump’s effect on the Canadian economy by saying it now represents 3.5% of our economy compared to 6% in 2014. So it hurts, but the hurt has fewer stings. That certainly fell on deaf ears in Alberta. The Canadian loonie dropped on the week fluttering near the $.74 US level.

Of course, a lower Canadian dollar is always good for Canadian cash grain prices and we’ll take it. It represents that price mirage our American friends don’t get. It’s come at a time when we’ve had this bounce in futures prices, which accentuates the positive on Canadian cash prices. Now all we need in the next few weeks is that good news from China. That would go a long way, to starting off 2019 with a positive beginning. We’ve had too much of the other in 2018.