A Close Call in Frosty Ontario, That Un-Expected Tuesday Only a Moment Away

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This week I have spent catching up on all of work I have to do after getting my soybeans planted last week.  It has been a very nervous week in Ontario because of the frost last Saturday morning, which was widespread across the province and where damage is increasingly becoming evident.  This should serve as a reminder to all, that we are in northern climes and frost is something that we always watch out for both in spring and fall.  It was cold last Friday and even though we are very used to cold weather in this country, we can’t grow things when it’s below zero.

I emerged unscathed from the frost.  I considered my corn to be highly vulnerable, having had it froze before in past years.  However, the new day brought no crop problems for me.  My soybeans had not emerged from the ground yet and for whatever reason my corn was spared.  Yes, I was lucky, not so for many other farmers across Ontario.

I have had corn froze in the spring several times, but it always came back.  Needless to say, I can remember back to June 11th, 1972 when a devastating frost hit Ontario.  It was the worst disaster my late father ever had.  His soybeans were mostly dead and his wheat had also been frozen.  He tried to replant, but it was an uphill fight.  There were no reliable herbicides back in those days.  Ever since then, June 11th has meant something in my psyche.

It was a close call, Agricorp, the agency that takes care of Ontario crop insurance, reported that out of the 5 million acres insured, only about 3% had reported damage as of last week.  It will be interesting to see moving ahead, whether this particular frost will affect final yield in Ontario this year.

I was interested in reading DTN Grain Analyst Todd Hultman’s column this past week, entitled Tenuous Acquaintances.  In the piece Todd talked about the relationship between grain farmers and noncommercial investors.  He had mentioned how they were our best friends when corn went to $8, but we may not feel this way in 2015 as we are going the other way.  At the end of the piece, Todd mentioned that the producers wanted a higher price for agricultural commodities is going to take a significant production loss somewhere in the world to turn noncommercial sentiments bullish.  I concur with that.  What we need is some type of Black Swan Hail Mary pass.

As we head into June, we don’t have a production calamity before us.  Yes, there is still time, we all know that July weather determines to a large extent the US corn crop and August rains do the same for soybeans.  Keep that in mind as the market bears continue to whisper in your ears.  It probably won’t turn out quite the way that they are saying.

It brings me back to that Black Swan Hail Mary, or what I call the “unexpected Tuesday”.  All of my life I have thought about some type of North American wide production calamity that would put us in a position of little crop whatsoever.  Of course, what that would be is temperatures as cold as last Saturday morning widespread across the US corn belt in the middle of July.  Perish the thought, that would do it, but we really don’t want to go there.  However, if it ever happened it would send us to price levels probably never seen before.

At the same time as cold weather stretched across Ontario, producers are getting a little bit of welcome blessing from the weaker Canadian dollar.  It’d crept up over the $.83 level over the last six weeks, but has retreated recently to .8048 US today.  The straight calculation of foreign exchange has a tremendous impact on cash basis levels especially for wheat and soybeans in Ontario and this has shown accordingly.  Of course the question is now what happens next, will the Bank of Canada have another rate cut or will they simply keep the status quo of .75 of 1% for the near future?  It’s just another day in the neighborhood here considering foreign exchange despite how cold it gets on some of the spring evenings.

The calendar will soon turn to June.  Of course market action in June will be focused on the actual acres that US farmers planted, which will be announced by the USDA on June 30th.  It is one of the bigger flashpoints of the marketing year and producers will need to hedge their bets, as that gets closer.  With the El Niño solidly in place in the Pacific Ocean, weather forecasters are predicting the summer will be generally mild across the major US crop growing regions.  Ditto for Ontario and Québec.  We all know what that means.   Yes, market bears are eating hay.  However, the script will unlikely not end in that way.  Keep in mind that Black Swan Hail Mary.  I know it’s a stretch, but history tells us to never say never.