Spooky markets. That’s the way I described corn markets last week in my monthly Market Trends column and podcast for the Ontario Corn Producers Association. (www.ontariocorn.org) Trying to interpret all of our markets now is more akin to a starry eyed genie in a dark room looking into a crystal ball. Charging 50 cents for an opinion might be a bit much.

If you read Darin Newsom’s column last week entitled “When 1 + 1 Does Not Equal 2” you’ll know what I’m talking about. In that piece Darin writes about what he was expecting based on the fundamentals, but the opposite happens. Also too, in his blog today, he writes about how the soybean market is trending against its underlying fundamentals. With the March to May soybean futures being in an inverted situation, there is a good indication that the underlying fundamentals are tightening in this market. However, as all you know, in Ontario over the last few weeks we’ve lost $1 bushel. Thank goodness for our now new “retro-loonie” currently trading under 80 cents US.

It’s almost laughable to look back now at a time in December 2008 when I asked in this column, “whether we have hit bottom?” Since the January 12th USDA report it’s been like a trap door has opened and bottom just keeps getting deeper. However, it is one thing to write and measure agricultural fundamentals and it’s another to measure the influence of what the “outside markets” have being doing to us. In many ways, that’s what makes any “Market Outlook 2009 or 2010” in February/March 2009 truly unique. Most of us have no recollection of agricultural market behaviour in times of deteriorating credit markets and subsequent deflation.

So today I gave one of my seed corn dealers a cheque for bags of seed corn priced over $260/unit. Does that qualify me as crazy in this agricultural environment? Is it like we are back to the days when corn was $2.50 and we planted something called hope, looking for a day when maybe the price of corn reached $4? Oh man, if we could have seen the road ahead.

If you look at futures values we’re getting back to more historic levels. That doesn’t soothe me much, but from a Canadian perspective maybe we should concentrate a little harder on the other part of any Canadian farm price and that is “basis”. Every North American farmer has to think about futures and basis, but in Canada we have the added foreign exchange component, which muddies the situation. A year ago we had huge negative basis values while today they have completely turned around. Predicting what has happened since would have been up there with the genie and the crystal ball. However, it’s pretty obvious a loonie in the 70 something range makes Canadian spot basis bids very, very positive.

However, basis levels in Canada don’t just become positive because the loonie’s bubble has popped. Basis levels for grain is the difference between the futures price and the cash price you receive in your local area. It is adjusted from the futures price from variables such as freight, handling, storage, quality, localized demand and in Canada foreign exchange. In Ontario for instance the three main crops, wheat, soybeans and corn have distinct basis patterns that determine its value.

I like to distinguish basis as “what is” and “what everybody thinks it should be.” For instance everybody in farm country has a philosophy about “basis”. When you add the value of the Canadian dollar into the mix, those philosophies become even more heated. Needless to say, I’ve got a simple definition for basis, which nobody can disagree with. Simply put, “basis” is the value added or subtracted by the futures month which grain moves at.

In Ontario that means the wheat basis will change based on the size and quality of the Ontario crop. The Ontario wheat basis will also change based on what the Toledo Ohio price is and it will also be determined in the lower St. Lawrence at ice free ports in Quebec which determine basis based off the US Gulf based price. Foreign exchange, the freight rates between Ontario and US crushers and the dealer handle determine the Ontario soybean basis. Of course the Ontario corn basis always reacts to US replacement price into Ontario. That’s mainly determined by big Ontario end users who import and export corn carefully controlling Ontario price.

I bring this to you because in this market environment, the confusing concept of Canadian basis almost seems a reprieve compared to our present day volatile futures market. Have we hit bottom? I don’t have a clue, in fact nobody does. Needless to say, a look at basis values at least gives Canadian producers some semblance of stability. In the world of “spooky markets”, at least that is something to hold onto.