It is like we’re in a month long solar eclipse.  Years ago I remember a solar eclipse at harvest time when the moon covered most of the sun at midday.  It made for a gloomy midday combine run through my soybean field.  So with the “financial crisis” dominating almost every American newscast, this financial gloom seems to paint everything, commodity markets included.
From a Canadian perspective I feel a bit like a spectator.  However, to me it turned comic in the last few days as John McCain decided to suspend his campaign and go to Washington to help work things out.  He even wants to cancel the Friday night Presidential debate.  Barack Obama didn’t have a lot of options, so he flew to Washington too.  He did chime in before he left that Presidential candidates should be able to do two things at once so he wanted to keep the debate night.  George W. Bush just wanted to get them in the same room.  I was shaking my head inside the cab of a combine.  The political ridiculous of the situation is getting a little much.  American late night comedian David Lettermen is now chiding John McCain because he said he was running to catch a plane instead of getting on his show.  Meanwhile Lettermen showed him live on another show.
Nonetheless, it’s not really fair for a Canadian to be even mildly critical of American politicians.  Believe me, in this country we’ve got our own characters.  However, regardless of the comic nature this “financial crisis” is morphing itself into, I’ve got one question.  Moving forward, how will the totality of this whole thing affect agricultural demand?
That’s going to be the agricultural litmus test.  Last week I was invited by Wanstead Coop near Alvinston Ontario to speak at their plot tour day.  The date had been in the works for many weeks.  However, as the day grew closer the financial meltdown in the US was reaching a high water mark with Lehman Brothers, AIG, Merrill Lynch weekend.  So I had to change a major part of my market presentation to deal with what I perceived a major pothole for agricultural demand moving forward.
The honest answer from anybody is that they don’t know how this will affect demand.  However, it was clear to me that day at Wanstead farmers were getting tired of this great “demand driven market.”  In fact with cash prices lower than some previous cash spikes in Ontario and much lower than last summer, hasn’t demand dried up?  Is the demand driven market over?  Was the hype just hype? And of course, doesn’t this latest financial problem have the potential to put a nail in the coffin of agricultural demand?
The answer to the last question is certainly yes.  However, the answer to it lies in the twilight zone.  Credit is the lubrication of the global economy and if McCain, Bush and Obama sitting around in a room can’t solve it, the wheels of global demand will begin to screech.  In many ways, that’s been happening in agricultural markets since July.  If its not solved successfully, it will keep playing out.
Of course nobody wants to hear this, not even me.  Nonetheless is the “demand driven market” we’ve heard and learned about since the fall of 2006 real?  Or is it a function of a record low US dollar, which essentially made agricultural prices a fire sale in far off lands?  In my mind answering that question has to do with $11 soybeans and $5 corn.  Prices that seem low now, pale in comparison with the $5 soybeans and $2.25 corn so vilified in our past.
In other words, yes the “demand driven market” is still here because cash and futures prices are much higher than historical averages.  However, farmers at Wanstead now think that $5 corn is the new $2.50.  So it’s a work in progress, evolving continually in our agricultural crystal ball.
Nonetheless, its pretty obvious to me, our immediate future isn’t paved with gold.  How can it be with this new financial crisis drying up credit worldwide?  Canada with its commodity riches like wheat, oil and lumber will surely be sideswiped.  When your customers credit tightens up or disappears, that doesn’t bode well for the 50-bushel soybeans disappearing underneath me.  Ditto for the rest of Canada.
Of course like you, I don’t know the future.  However, I can see an American dollar depreciating again.  I also see the world’s production machine geared up to meet the pent up demand we all thought would be there.  I can also see further unexpected economic events, which could further imperil agricultural demand.  I see big negatives from this whole thing.
The agricultural skeptic might say, there is Phil again.  He’s had dirt under his fingernails so long; he thinks we still live in the LDP, commodity loan, and grain surplus world.  That may be true.  However, in my 22 years writing this column, I think I’ve seen and wrote about it all, but I’ve never seen this.  The hue of this gloom is eerily different.