The Future Amid Railroad Blockades and USDA Projections

It has been a harrowing week in Canada. With railroads blockaded at different points across the country, you can almost feel the economy contract. Across the country, trains are either stopped or slowed or something in between. Tensions are rising as our politicians disagree with each other. At the vortex of the disagreement is the authority of Hereditary Chiefs in northern British Columbia, a natural gas pipeline and a long history of conflict between aboriginal peoples and different levels of government.

There is tension on all sides and lots of opinions. Some people look at it as one of enforcement or lack of. Others might cite political weakness. Everybody wants a peaceful settlement to the blockades. However, the economic damage is adding up, some of it backing right up into Canadian farms. We will see what happens. It’s a Canadian problem which will likely get a Canadian solution. However, as of Thursday night, the rails are still blocked.

With these problems as a backdrop our American friends for the moment, gave us something of a diversion. It came during the USDA Outlook Forum taking place in Washington DC this past week. Every February the USDA has its outlook forum and it can set the initial tone for what US agriculture might expect in the year to come.

The USDA announced a projection of 94 million corn acres in 2020, a 5% increase over last year. USDA also projected the soybean acreage to come in at 85 million acres, a 12% increase over last year. These are big numbers, but not really a surprise based on the fact that 2019 acreage was 16 million acres less than expected because of wet conditions last year. I had expected much bigger numbers. Now, of course, we get to see if Mother Nature plays nice. It’s a long road to getting this crop planted and harvested.

USDA disappointed somewhat with regard to agricultural exports. The US China Phase 1 agreement has called for the Chinese to import $36.5 billion of US ag products in the calendar year 2020 and $43.5 billion in 2021. However, the USDA forecasted $139 billion of US agricultural exports in the year 2020, which is up $4 billion from last year. The China business was not accounted for, but clearly politicians are predicting much of the Phase 1 business will come later this year into next year. It might have been a case of under promising and delivering more later. However, with the coronavirus still dominating China, the truth might be elusive. Those Phase 1 projections may be pushed into the future.

The USDA projections are just theory now. The March 30th planting projections will fine tune these numbers. However, clearly, USDA is projecting bigger crops for this year, which also will mean higher ending stocks if demand does no pickup and Phase 1 agreements don’t come to fruition. USDA is expecting corn prices to fall 25 cents down to $3.60 a bushel. Soybean prices are to drop 5 cents down to 8.88 per bushel.

Of course, if it was all so easy. As farmers we know these prices will be different. Seasonality tells us we should see our best corn and soybean pricing opportunities in the May-July period. Having your standing orders ready to capture some of these opportunities will be key going forward.

Outside of these projections are geopolitical and political considerations. There is an American Presidential election this November and that could bring out more MFP, which I refer to as an annuity. $20 billion of farm aid injected into the American farm economy pays a lot of bills. Expect more of this as the year goes on.

It makes it all look negative for Canadian farmers who are sellers of grain and oilseeds. We don’t get MFP on our farms. The Canadian dollar fluttering around 75 cents is the saving grace. Without it, those American prices get ugly real fast.

Needless to say, we’ve seen it before. Last year was no pleasure cruise. In Ontario this year, we can expect approximately 2.2 million acres of corn to get planted and 2.7 million acres of soybeans. Quebec will likely respond from the horrendous corn year which was 2019 boosting acreage to 950,000 acres. Quebec soybeans should come in near 900,000 acres. Of course, we’re hoping for great crops, with some great pricing opportunities along the way.

We shall see. First up will be getting Canada back to normal again. I’m hoping by this time next week, the railroad blockades are a distant memory and we get back to shipping our agricultural products. Our futures might be forged by USDA and mother nature, but the more we can do to help ourselves, the better it will be.