Is Hope On The Way: Painting a Picture for a Positive Summer

On Friday the USDA will release it’s monthly report on world supply and demand prospects.  It will contain the first prospects of what’s really going on for the 2006-07 marketing year.  For Canadian farmers, it might be the only thing that offers any hope.  If we ever needed China to buy some grain its now.

With our loonie flirting with 91 cents US negative basis has started becoming part of our lexicon.  In my career I can only remember negative basis once and that was on corn in the fall.   With our loonie seemingly on testosterone, negative basis might become a growth industry.  Let’s hope not.

So is hope on the way?  Maybe, if you believe our federal government with its new $2 billion commitment for the next two years.  So what happens after that?  Is the commitment over?  Will there be an election with farmers being lost in the shuffle?  Am I being too negative?  It’s just so hard to be positive in our current agricultural environment.

Maybe we need something completely out of the blue.  Something like what was found this past week in the North West Territories.  It was there where an American hunter bagged himself what he thought was a polar bear.  However, on closer inspection it didn’t quite look that way.  The “bear’s” white fur was spotted brown and it had long claws and a slightly humped back more characteristic of a grizzly.  Government officials seized the bear and a DNA test was taken.  Shazzam, we’ve got our first hybrid polar-grizzly bear every found in the wild.

So is that what we need?  Do we need something so unusual in our agricultural economic world to sustain Canadian agriculture?  Does that mean corn hybrids that consistently yield 250 bushels/acre?  Does that mean soybean varieties that will consistently yield 70 bushels/acre?  Does that mean hogs at $200?  Does that mean more agricultural biotechnology?  It’s hard to say.  Adjusting to this 90-cent agricultural world is everybody’s challenge.  Finding a polar bear-grizzly mix in an agricultural context might be years away.

Having said all this don’t get too negative.  That’s the easy way out.  I didn’t stand up at five different farm rallies this past winter if there hadn’t been any hope.  I would have taken the first bus out if that were the case.  There is a compelling case for the positive.

Take the futures markets for example.  Prices are in the top third of the market.  Traditionally this is the time to sign contracts and maybe price grain deep into the future.  Corn at $2.50, soybeans at $6.00 and wheat closing close to $4 represents pretty good historical prices.  If the loonie were back where it was in August of 2002 (62.5 cents US), you’d be able to contract corn for over $4.00, soybeans way over $10.00 and wheat closer to $6.  So thankfully futures are bailing us out right now.

How about that loonie?  Almost every cheap skate economist on earth right now is saying it’s going to 95 cents US.  However, can a reasonable argument be made to the contrary?  With the dollar going up 45% between August 2002 and May 2006 and 5.6% this year alone is it reasonable to expect a downward correction?  With that correction, will it send Canadian cash prices for grain upward?  Will the bleeding stop?  Is there any traction to this?  I think so.

Some of you might think all of that is a stretch.  So be it.  Hopefully it’ll happen, but if it doesn’t there is the new Canadian agricultural policy horizon.  Skeptical as I am it is a new day.  There is new money for flexible application across the country.  In Ontario, that should mean a risk management policy (RMP) to sustain rural Ontario through this rough spot.  With tractors ready to roll back to Parliament Hill for Canada Day, there is passion in the rural countryside to force this issue.  Ontario agriculture minister Leona Dombrowsky needs to accept that and become an icon in rural Ontario.  If she dithers she’ll become a pariah for every rural MPP.  Doing the right thing has never been so obvious.

However, the reality of May 2006 is what it is.  For the mean time everybody has to find their way.  I’ve heard of the most innovative debt restructuring schemes over the last few weeks.  Scary stuff.  If it gives you some solace current futures prices are projecting much higher prices than we have become accustomed to.  The USDA report will provide some clues for that.  Combine that with the loonie falling back down and maybe we’ve bottomed out.  Don’t lose hope.  It might be just around the corner.