I’m Dreaming About $20 Soybean, But Cash Markets Are King!

$20SoysI am dreaming about $20 soybeans.  At least now I have time to dream.  On December 2nd corn harvest finished for me, one of the latest corn harvests on record.  The corn tested 21% on that day and it was stunningly beautiful.  It makes me wonder that in 2010 if I have my soybeans off by October 1st whether I would have the discipline to wait until December 1 to harvest corn?  Don’t think so.  Maybe in the meantime I can keep dreaming about those $20 soybeans.

I can hear the coffee talk shop right now.  It’s not as though I haven’t said something about $20 soybeans before.  I like to quote that line because in the big run up in soybean prices in 2007 and 2008 there were a few floor traders in Chicago musing about $20 soybeans.  I think I will live to see that day but not necessarily this year.  With all those soybeans in the ground in South America, something tells me there would have to be in an aphid and soybean rust tsunami for that to happen.

Me dreaming about $20 soybeans always turns into Phil Shaw said soybeans are going to $20!  I hope the day they get to $20 my phone starts to ring.  I would love to take credit for that.

We shall see what happens in the soybean trade with Chinese demand still off the charts for nearby months but South American supply weighing on outward months.  I think the challenge for Canadian producers is figuring out exactly what is going to happen with cash prices.  In the volatile agricultural world that we find ourselves in, not only our futures prices more jumpy but also it seems that cash prices are that way too.  At the present time in Ontario you have large negative values for basis on both corn and soybeans.  When you are looking at about a three-dollar positive basis for soybeans last spring, these negative values should be as welcome as a root canal from hell.

Of course much of our problem here in Canada is a result of our Canadian dollar being the inverse of the US dollar.  This is what has happened to the Canadian dollar over the last eight months.  On March 12th, 2009 the Canadian dollar was at .7749, ten weeks later it topped out at .9265 US only to fall back to .8577 on July 8th and back up to .9370 on August 3rd with a noon rate of .9486 today.  That’s volatility.  So when was the best day to lock in our basis for grains?  March 12th, 2009 looks like a good bet to me.

Of course everybody is a smart guy now, including me.  I say that jokingly because nobody knows what’s going to happen but as Canadians are job in marketing our crops is that much more difficult.  In 2009 and 2010 “cash price “is king and if I described the loonies 2009 volatility to you in 2008 or 2007 you probably wouldn’t have believed me.  So if you have 2009 crops to market or have not priced out as of yet who is to say that you won’t have a $3 positive soybean basis come this summer?  Nobody.

Key in this debate is what is going to happen with the US dollar.  I find it difficult to believe that the US dollar will remain at these low index values or go even lower.  However when gold reached $1200 an ounce this past week I don’t think that there were many people who thought it would go there.  Our American friends have their problems with their government deficit, with the two wars and with the world wary of their financial picture.  As a Canadian I hope that clears up soon because a stronger United States at the end of the day is very good for Canada, very good for the American dollar and ultimately very good for Canadian agriculture.

At the present time though, at least in Ontario there is still a lot of corn in the field and it is hard for me to estimate how much and how good it is.  Ditto, I think for the USDA in their December 10th USDA crop production report.  With the US corn crop only 79% harvested, there is some debate whether the USDA will change the planted and harvested acres number.  Or they may just punt and look to the January report as the real litmus test on acres and yield.  Previous years where there has been a delayed harvest, it did not necessarily garner many USDA fireworks in the December report.

In Western Canada, Ontario and Québec, we certainly have our issues with how grain is priced.  In fact some of my articles have been published in Alberta to show Western farmers how Ontario farmers market their wheat by themselves. In Québec they have single desk selling for wheat.  Clearly though, our issues as producers when it comes to pricing has to focus on “cash factors”.  There is seasonality to our cash prices and there are also currency gyrations, which are growing more unpredictable everyday.

The challenge for both single desk pricing agencies and individual Canadian farmers is to analyze and measure the “cash factors” determining price in your area.  The futures market might be sexy, but the cash market is where we live.  As we move ahead don’t be surprised if the cash market both surprises you and at the same time comes back to bite you.  It might have been a poor cousin at one time but it is no more.  Cash markets are King.