Government Cuts to Agriculture As USDA Sets the Table

So let’s get the elephant in the room out of the way first. I am writing this the night before one of the 3 biggest USDA reports annually.  The March 30th USDA prospective plantings report is always the starting gun on the new crop year.  This report along with the June 29th USDA actual plantings report and the January report are the big 3 that affect market action.  So if we get 96.2 million acres of corn and 75.2 million acres of soybeans announced from USDA tomorrow, don’t tell anybody I told you so.  As I write this the night before it is all fiction now.

I will have more about the USDA for next week.  Market action over the past week has made it hard to tell whether the report has been released or not.  The May corn futures contract has lost $.70 in about one week.  If that isn’t volatility, I don’t know what it is.

It sure is shaping up to be a corn friendly planting environment over the next 6 weeks.  The new crop corn market is reflecting that, as prices this year have been much lower than were offered last year at this time.  It is not often you get a chance to work ground in March, but this past week I worked over about 80 acres, getting it ready for corn in another 3 weeks.  That was very unusual for me, but if you multiply that across the whole North American Corn Belt, you can see the reason that new crop corn futures have been going lower.  The futures market predicts the future and it thinks there’s going to be a tremendous amount of corn.

So let’s leave that crystal ball until next week. We should have some violent market action on Friday and Monday, but maybe things will settle down after that.  It is a long way until harvest time.

In the meantime there is been no shortage of news regarding agriculture in Canada.  Today, the federal government released its budget for 2012.  We found out that the government is cutting $5.2 billion of government spending.  Remarkably, the agriculture department is facing the deepest cuts of any federal department being reduced 9.02% into 2014/15.  This represents a reduction in spending of $309.7 million.  If you ever had hope that the federal government was going to contribute to Ontario’s risk management program, you can forget about that now.  Federal expenditure on agriculture continues to decline and seems to be accelerating.

The specter that cuts were coming was not unexpected.  The Harper government has been spending money like drunken sailors over the last couple of years, partly in response to address the financial meltdown of 2008.  The stimulus funding has to be paid back some time, as there were cuts across the board.  I don’t know how agriculture seem to get the biggest percentage but it may reflect the fact that agriculture minister Gerry Ritz doesn’t get it.  I am clearly in that camp.  How could he face farmers and actually defend this?  It does not add up to me.

Of course $309 million dollars in cuts to agriculture pales in comparison with the 1.1 billion dollars cut to the Department of National Defense.  I could go on and on.  We are losing our Canadian penny, getting a new national park near Toronto and also seeing a 10% reduction in CBC funding into 2014/2015.  It is what it is, and at the end of the day Canada’s net debt to GDP ratio is at 36.6%, the lowest of any G7 country.

To top it off this week we also had the provincial budget in Ontario.  Once again we saw wide service cuts to agriculture and many other ministries.  Telling in the cuts to agriculture was the risk management program, much fought for over the years by Ontario farmers.  It is being cut, ignominiously, with a lame excuse that they are giving up trying to get the federal government to help fund it.  It will last for another year but then will be gone.  I can remember standing out in the snow at several farm rallies fighting to get that program.  Now it is leaving the scene and we are starting all over again.  There’s something wrong with that picture.

It sets up an interesting situation.  The Friday USDA report may be very bearish, piling on a very bearish week.  There is a chance grain prices may go down to cost of production levels again.  Then we’ll need that safety net we have fought so hard for.  However, now it’s gone.  Some things just go round and round.

In many ways that echoes from times past and maybe we don’t want to go there.  Despite the recent losses in corn and wheat, the world is still demanding grain.  This may be even a tipping point.  Who knows?  The USDA gives and takes away.  Ditto with government.  The hard part is when it happens at the same time.