Post US Drought: The Opportunity Ahead Is In Our Hands

    Last week I finished up wheat harvest.  I had an average wheat crop this year, mainly because it was so difficult to get it planted last fall.  Heavy rains inundated me last fall, delaying harvest and pounding my little wheat seedlings into the ground.  I’m hoping for better things this year with new varieties and maybe better luck.  However, I could not complain about the price of wheat, having gained over $3 on the futures market since early June.  Sometimes it pays to be in the right place at the right time.

Usually after wheat harvest, I have a little bit of slack time.  I took advantage of that today and traveled north from my farms near Dresden Ontario up along the Lake Huron coastline to Southampton and then back thru the interior of Huron County Ontario.  It is always a spectacular drive and today didn’t disappoint.  As I traveled north I got to see much wheat still being harvested, as the harvest is staggered throughout Ontario.  It looked like the harvest was going very successfully in these areas at the expense of corn and soybeans.  The farther north I traveled, the dryer it got.  Corn and soybeans were suffering from extreme dry conditions as I moved north of Goderich Ontario.

Simply put, weather can be cruel.  A few years ago Ontario crops were burning up, including my own.  My corn was fired up from the bottom and we were all praying for rain but nothing was coming.  At the same time the grains market was not responding to the dry conditions in Ontario.  It just so happened that was the year I boarded a bus to Decatur, Illinois to go to the Farm Progress show.  As we left Ontario all of us were amazed to see drought conditions into Michigan.  However, as we got into Illinois the corn turned green.  At the show I met DTN senior grains analyst Darin Newsom.  I told him that story.  He responders to me by telling me the market was very concerned about corn conditions in Iowa, Indiana and Illinois.  Corn conditions there were good and so prices were not so good, not reflecting the Ontario conditions whatsoever.

For whatever reason this year, I’ve caught every rain that has come through and my crops look very healthy.  I know how lucky I am because you do not need to go far in Ontario and see some extreme drought conditions like I saw today near Goderich, Port Elgin and Southampton Ontario.  There are also areas of drought near Hamilton with a strip that runs through Tillsonburg Ontario where there are horrific drought conditions.  However, Ontario is a far cry from what is going on in the greater US Corn Belt.

Of course we all know what happened today, with the nearby corn futures contract breaking through $8 a bushel and soybeans over $17 a bushel.  This is rare air for the grains market and its making things very volatile because the market is not functioning normally.  The top must be out there somewhere and maybe it is getting very close.  Volatility in spreads between futures months today was incredible.  Trying to hedge that risk is difficult.  Maybe the strategy should be to have standing orders ready for grain prices that we have never dreamed of, such as $9 Corn and $19 soybeans.

One thing that I do find strange about the recent run-up in prices is the ambivalence of our noncommercial specular friends.  As many of you know I have attributed much of the price volatility over the last several years to the action of the noncommercial speculative sector.  They are quiet now in the market compared to the commercial side of the market, which is buying grain.  Physical product is in short supply and the perceived new crop supply is even worse.  However, the pinstriped pirates within the noncommercial speculative arena seem to be on the sidelines.  That has me a bit astonished and confused.

However, that is okay.  All of you know that I don’t have all the answers.  I farm for a living, I grow the crops and yes I market my crops but I never subscribed to the fact that I know what prices will do.  Nobody knows.  The challenge is always to market where you are profitable and comfortable and then let the chips fall as they may.

We certainly might be entering the home stretch with regard to this devastating drought and its impact on grains pricing.  When will the top come?  Could it be August 10th when the USDA chimes in once again or could it be in September when they do an encore?  However, keep in mind, the drought in the US is a game changer for our grains balance sheet for several more years.  You can’t take this much away along with what happened in South America last winter and blow it off.  The road of opportunity ahead is clearly in farmer’s hands.