Is it time for a reality check?  Let’s go back two years and read my commentary from the July 2006 edition of the Ontario Corn Producer Magazine.  “July futures have fallen off since then from a high of $2.60 down to $2.29 by June 20th.  September and December futures have had similar moves down with September going from $2.71 to $2.41 and December going from $2.86 to $2.55.” (Market Trends, Ontario Corn Producer July 2006)

So let’s rewrite that one for July 2008.  July futures finished on July 3rd at $7.46/bushel.  September and December futures have had similar moves with September 2008 finishing at $7.57/bushel with December 2008 finishing at $7.77/bushel.  Answer me this question.  Why didn’t I have the guts enough to tell farmers two years ago to hold on because corn was going to $7/bushel?

It surely is a different world.  In fact when you look back two years ago you had a futures world and basis world working in tandem.  Now in Ontario we’ve got flat prices going forward at ethanol plants throughout Ontario.  2009-grain contracts are few and far between.   Agricultural policy like RMP in Ontario, which is based on yesterday’s target prices is way out of step.  However, when the new target prices start in 2009 and 2010, Ontario farmers will be rewarded if the end comes.

Last week the focus of the market started out on the June 30th USDA Acreage, Stocks Report.  The USDA came out with a bit of a bearish surprise as they reported US corn acreage totaled 87.33 million acres up from the 86.01 million acres, which they predicted in the March 30th planting intentions report.  You might remember after the March 30th report I thought we might have farmers “switch back” to corn after corn prices shot up after March 30th.  It looks like that happened.

Soybeans came in at 74.53 million acres, which was slightly less than the 74.79 million acres prediction from March 30th.  It would seem that $6 corn won the acreage war versus $13 soybeans.  Soybean stocks are really low coming in at 676 million bushels, which is almost half of what it was last year at 1.092 billion bushels on June 1, 2007.

The USDA predicted that corn stocks were a whopping 4.028 billion bushels at the end of June.  Now 4 billion bushels is a lot of corn as I can remember a few years ago that was about half of what US production usually came in at.  However, in this case it may reflect a rationing of demand, but also the shear reflection of the huge 2007 crop working its way through the system.

It lead to a wild week on the futures market as corn initially went down the limit only to rebound at the end of the week.  Soybeans continue their bullish ways with November futures surging to $16.31 by the end of the week.  Am I still dreaming about $20 soybeans?  Maybe I should be dreaming about $30 soybeans.

Of course nobody knows that.  With the amount of flooding in the American Corn Belt, these numbers may be nebulous going into the fall.  The focus will be on “harvested acres” moving forward.  Keep your eye on the states of Iowa, Illinois and Indiana.  Those are the key corn and soybeans producing states where flooding has caused millions of acres to be compromised.  Drought tolerant hybrids don’t have the same ring to them this year.

In Ontario the US replacement price for corn as of July 3rd stood at approximately $7.78 bushel.  However, basis levels are negative over a dollar with cash prices ranging from $6.48 to $6.58/bushel.  Simply put, “basis” in Ontario or to push it even farther across “Canada” is not what you think.  With grains pushing new highs, basis is simply a realization that end users will not pay traditional prices.  Flat prices are starting to be offered outward into the future.  The elastic band, which is basis, is completely limp.

What you say?  Well think back to how I started writing this piece.  I said we had $2.29 corn futures, which had a –10 basis ($2.19 cash price) and a surging loonie at 91 cents.  That futures value is 29% of what we have today.  Basis had real value.  Now, with futures so much higher “basis” has turned into the huge “fudge factor” used to shield Ontario end users unable or unwilling to pay these higher prices.

It has everything to do with market structure (ologopolistic competition) and our international border.  The Ontario Corn Producers Association made an attempt to fix it with their countervail action.  However, that failed and the road back there will never be traveled again.  So it is what it is, and the reality Canadian farmers must adapt to a grain world completely decoupled from the institutional rules we’ve all become accustomed too.

Something tells me at these price levels that’s not too hard.  However, even now Canadian price levels are lower than our American counterparts for the same bushels.  No, corn isn’t $2.29 anymore.  In our new agricultural world, two years can make a world of difference.