Sometimes Its All About Where the Rain Fell

I have moved to my last cornfield, and it is a pretty tough one.  The yield monitor has not been kind on my initial forays into the field as widespread drought from June to August certainly caused a lot of havoc with my dreams of a bumper corn yield. Memories of last year’s near record yields on some of my tougher land are dancing in the back of my mind.

Soybeans only get to be about 8 inches high on that tough piece of land in the best of times.   In the past, I have found I have a much better chance of good things happening with wheat or corn. The modern genetics within corn seemed to cover up a lot of the limitations that this soil has. Unfortunately, this year a lack of moisture has made it more of a moot point. Thankfully, this fall has been benign, and I won’t be packing the ground making it more challenging next year.

This is certainly not been the case for all of Ontario this year. For instance, in eastern Ontario there has been some incredible yields for both corn and soybeans. They got the rains and the good summer weather when they needed it. At the same time yields are fickle throughout southwestern Ontario. For instance, in my area, it is a down year while yield variability can vary between a three mile stretch between concessions. I had one farmer stop by today telling me that most of his land yielded 14 bushels per acre soybeans.  He was just west of me in an area that was even drier then where I was.  Simply put, weather can be cruel.

This is farming. You often might read some of my musings talking about risk management.  In Ontario, crop insurance is a large part of that for many farmers and in 2022 large claims will be made.  However, risk management is so much more than that. It’s all about measuring where you are in managing the risks that you might have, and it not only extends into your production fields but beyond into the marketing realm. With prices at very high levels capturing some of these opportunities has been all part of the greater global risk management game.

Of course, we know in 2022 on a global level that has been difficult. On February 24th when the Russian army invaded Ukraine our whole world changed, and the amount of risk associated with market prices changed with it. There is a myriad of new different marketing challenges that come from a big important agricultural area such as the Black Sea becoming part of a hot war.  This hot war of course is still ongoing and every week in the markets we see new price moves based on the risks associated with the Ukraine Russia war.

This will surely continue into 2023 and I say that regretfully.  People are dying as I write this in Ukraine as the war continues unabated, something that hardly makes any sense.  Meanwhile our markets continue to gyrate based on grain fundamentals but also the geopolitics of the Black Sea was such a long history of conflict, insurrection and much worse things

In many ways, prices reflected now in our agricultural markets are based on the one great assumption that South America will save everybody when it comes to production. The world needs food and agricultural commodities, and South America will provide it. For instance, this year the USDA is saying that Brazil will produce 152 MMT of soybeans, a mindboggling figure compared to the recent past.  This is the great assumption that is taking place within our agricultural commodity price discovery arena.  Everywhere else around the world agricultural supply is more limited and constrained in 2022.  In South America, the world looks to them to carry the ball on global agricultural production essentially covering up any problems seen elsewhere.

Which takes me back to that very tough piece of ground I’m currently driving my combine through.  I had visions of 200 bushels per acre yield on this ground but I’m probably getting closer to half that.  Needless to say, that tough ground is a resource of mine and as an agricultural economist it’s up to me to use that resource in the most efficient manner. That means that I weigh everything including all those agricultural marketing variables in South America and the Ukraine when measuring how much corn to grow and how much should I have sold. It’s all part of a grander risk management vision, something I hope to get right on an annual basis.

The tough part is I didn’t get the weather this year.  it didn’t rain when I most needed it. That’s the kicker when it comes to farming and agricultural production around the world. It is so true that risk management never grows old and it’s also true that weather risk is such a large part of that. Sometimes you can do everything right and still be wrong or on the other hand do everything wrong and still be right just because of where the rain fell.  Needless to say, as farmers we need to move on, measure those risks so apparent in our farming businesses and continue to make the best choices. Somewhere along the line it should pay us back big time.