Time to Recalibrate Our Grain Marketing Standing Orders

I am still driving my sprayer through the fields.  In fact, it almost seems like I live on a sprayer from April to July.  I’m old enough to remember a time when farmers didn’t do a lot of spraying.  Then in the 1960s everything changed.  We got a few herbicides that actually worked.  So my late father bought a small steel Calsa sprayer and put the kid on it to pull through the field.  The rest as they say is history.

Needless to say, times have changed.  Back in those days I mixed up a chemical called Treflan, which was bright red, but when it hit water, it turned yellow. Generally, it turned me yellow too as at that time we didn’t think much about herbicide safety.  Now, I drive into my field after injecting chemicals into my spray tank, dial in the field the guidance lines and I let my rate controller calibrate my herbicide.  Hopefully, all those chemicals will help me produce bumper crops for this year.

Unfortunately, it was a pretty tough spring in my part of southwestern Ontario.  So I’m not expecting as good of a crop as ahead last year.  There is much weather to come so hopefully I’ll get into September and October and be pleasantly surprised.  However, most of you know that I’ve been writing this column for 30 years, so let’s just say I’ve been around a few times.  Problems created by a wet spring generally have a long tail.

Interestingly enough some of the tough spring weather that I endured is affecting US crops and subsequently affecting market prices.  The major force in the grain markets over the last few weeks has not been wet weather, but rather drought in the Dakotas taking down the HRS wheat.  It is sent HRS futures almost straight up until they backed off $.50 to the negative today.  These market prices have been accentuated by the June 30th USDA report released last week that had a few surprises for market players.

In the June 30th USDA report, the USDA surprised the market by predicting less soybean acres than the trade expected.  US soybean planting came in at 89.51 million acres, which was very close to their March estimate but much below as many in the trade were expecting a higher soybean acreage.  This soybean acreage is still a record and 7% higher than a year ago.  Traders were leaning the other way and soybean futures went up on the report based on those dashed expectations.

American farmers did plant 90.89 million acres of corn according to the USDA, which was higher than many people had expected.  Quarterly stocks for corn came in at 5.225 billion bushels, half a billion more than last year.  The stocks number was above trade expectations.  You could make an argument that the report was bearish for corn even though it went up in sympathy with wheat and soybeans after the USDA report.

Of course this was happening in an atmosphere where HRS wheat futures were vertical.  As of now we’ve got December corn futures at $4.01/bushel and November soybeans approaching $10/bushel.  September SRW wheat is sitting at $5.35 with cash prices in Ontario well over $6 Canadian.  With wheat harvest currently underway in Ontario, those higher wheat prices have come in the nick of time.  However, what we saw last week was a classic Canadian farm marketing conundrum.  We had rising corn and soybean futures prices but at the same time the loonie had taken off over the $.77 level US.  The Bank of Canada governor musing about raising interest rates spurred it.  That meant cash prices to Ontario farmers didn’t increase as they would’ve a few weeks ago when the dollar was at $.73.  It is what it is.

We also saw international trade with the rest of the world from Canada surge to record highs in May.  In fact, Canadian exports have increased 18% this past year.  Things are humming along pretty good and it puts even more pressure on the Bank of Canada to raise interest rates on July 12th.  A rise in interest rates will likely increase the value the Canadian dollar putting further softening pressure on Canadian grain prices.

We shall see.  It’s still hot and dry in the Western US corn belt.  I had one colleague from South Dakota send me pictures today of him baling his wheat because it wasn’t good enough combine.  It made me wonder if mother nature is picking 2017 to negatively impact crops to send prices much higher?  The answer of course is nobody knows.  That’s only one reason why agriculture can be such a risky business.  I had a tough spring and I’m spraying my crops now to try to make things better, but at the end of the day none of that matters to the market.

So I soldier on, doing what I do and that is spraying, at least for the moment.  By late next week, I might even be harvesting wheat.  With the USDA report behind us and the Canadian dollar finding some rare air, it might be time to recalibrate those grain-marketing standing orders.  Our world has changed, a little more over the last two weeks than usual.