It is getting to be a bit like a broken record or for my younger readers the emoji that just won’t go away. This past week your loyal scribe actually avoided the heavy rain that Toronto got, but most of Ontario farm country got inundated with the same water. The streets of Toronto were flooded, and this made the mainstream media which brought attention to the heavy rains. However, what you didn’t see in those media reports was the widespread crop damage you get when things are underwater.
Once again, fertility is not the limiting factor to yields in many parts of Ontario farm country. As I’ve said many times, you can’t grow things when they’re underwater. That’s the reason that drainage is always a limiting factor for top yields on my farm. Regretfully this year, there’s no drainage system set up to take up the copious amounts of rain which fell in a very limited time.
With cash prices for corn below $5 soybeans below $15 and wheat just over $6 there’s lots of gnashing teeth. I would prefer to look the other way, but I found out that ignoring the problem really never does it a lot of good. This year we took the escalator down in crop prices and hopefully will find a way to take the elevator up. However, you know how that works, usually not too good.
Keep in mind that this is a momentary thing, our grain market is always fluid and there could be something right around the corner to make things better. Yes, I know I’m talking about agricultural commodities which naturally migrate to lower prices because of inherent inelastic demand. However, I need to offer rays of sunshine to keep our spirits up. The one hope that I would offer is at these low prices we are actually building demand for a better future.
Look at the demand figures of our latest USDA report for some clues on what might be happening. What I always like to look at is the total usage for corn domestically in the US. On July 12th, that figure stood at 14.905 billion bushels, an almost science fiction number compared to where we have come from. In other words when you add up the feed, ethanol, seed, crush and total exports of corn from the US it adds up to approximately 14.905 million bushels. It is no wonder then when we look at that usage figure, we actually need production of 15.1 billion bushels forecast for this year to make it all work.
The hard part of course is getting that supply and demand back into a better equilibrium. As we all know over the last several months supply has been outstripping demand with old crop stocks being what they are. There is also the specter of new crop coming on and thus we have much lower prices. Building demand means increasing our usage and eventually supply will adjust through production shortfalls either here or overseas.
Corn demand has been strong, but it needs to be even stronger. Soybeans are another issue as there is tremendous competition coming from Brazil. However, at the present time US soybeans are $0.70 cheaper then Brazilian beans for October delivery. If this doesn’t spur demand and more usage of American soybeans, I don’t know what will? As it is, there has been new sales of soybeans to unknown destinations. Of course in this case like in many others it takes cheaper prices to build that demand.
Are grain prices still too high to build demand? It certainly doesn’t feel that way and hopefully we’ll see more evidence of new buying. Take China for instance. September corn right now in China is trading at the equivalent of $8.35 US a bushel. This is over twice the US cash price. You would think minus the geopolitical baggage that this would spur demand. At the same time Argentina is the only country with cheaper corn.
The armchair agricultural economists would tell you that we need some type of production calamity somewhere to lessen the supply to bring those grain prices up. That assertion is very correct but if we have demand building, he will make that price appreciation that much quicker.
It’s hard to say what will happen. It is certainly true now that the grain narrative is of too much supply and not enough demand. That has put pressure on prices to decrease to a point where demand will build back up. The hard part is getting over the top of that mountain. We’ll get there someday, but as of July of 2024 it looks like we’re still climbing.