Futures prices are headed down, at least in the short term.  Oh, wait a minute, I’m the guy that never makes those predictions, as Barack Obama once said,  “that’s above my pay grade “at least for this column”.  As all of you know I always maintain that nobody knows what futures prices are going to do however, “seasonality” within our grain markets tells us that traditionally grain and oilseed futures move down from some point within the next week or two until the fall.   It’s that time of year moving from old crop to new crop, moving from spring to summer, where volatility is our only constant.  It’s also the time when predicting market moves requires a huge dartboard.  There are just so many variables we don’t have control of.

I had a brief conversation with DTN senior analyst Darin Newsom the other day.   He wrote another excellent column entitled “A Clear View” making some great observations on a grain markets.  I was trying to make sure I got into his online webinar Thursday afternoon and somehow we ended up talking to each other.  I told him about the production problems we had in Ontario and Québec corn country, which to some extent mirrored the Eastern Corn belt production issues.   Part of our conversation concerned the economic variables that are affecting the market such as the value of the US dollar and what is affecting it.   Those economic variables are such a moving target when it comes to the grain markets it makes eyes glaze over.

However, it just so happens that’s where my background lies and the economic happenings of the last eight months have been unprecedented in my life.  So when I think about the grain markets or commodity markets in general, I often think about how are greater economic levers in the economy at 2009 are affecting grain and how that is going to play out in 2010 and 2011?

Let me give you an example of something that I find very confusing.     In the last few weeks I heard Canada’s finance Minister Jim Flaherty talk about what he considers to be the biggest threat to the Canadian economy and that is the burgeoning US budget deficit.  That budget deficit is expected to approach or exceed $2 trillion US.  When you start talking tens and hundreds of billions of dollars it is one thing, but when you get up into the trillion dollars range my eyes glaze over.

Of course what Jim Flaherty is concerned about is that the unwieldy size of the US budget deficit has grown so much a credit downgrade might trigger which would eventually force the United States to increase interest rates.  At the same time this would have the effect of increasing the value of the US dollar, which would be negative for grain and almost all other commodities.  Of course Flaherty is worried that this would have a devastating effect on the Canadian economy and the tens of billions of dollars that our government has used to stimulate our economy would go for not.  At the end of the day this would be our own Canadian economic calamity.

Now for those of you who are just completing your second application of glyphosate on your corn or soybeans or dealing with a prairie drought, I’m sure this is not top drawer for you.   However, it is there, like it has never been before and it is something that is in the background of every agricultural economic decision that you will make.

It begs the question what do we do now?  For instance despite the calamity that has been going on around us in the nonfarm economy we have the lowest interest rates in our history.  For the last couple of years and presently today we are debating about futures prices for grain and oilseeds that would’ve been fantasy three years ago.  And despite the economic calamity that the West has found itself in, countries like China will still grow at 7.2% this year.  So at the end of the day that’s still a lot of food demand.

So what should we do now, borrow all the money we can and leverage our management choices to the hilt?  Should we sell all the grain contracts we can in anticipation of higher interest rates and tough economic times ahead?   I don’t know, maybe a little bit of both might be good.

Clearly from my perspective at the end of the day “the economy thing” is still the biggest moving target within any agricultural marketing decision we’re going to take in 2009 and 2010.  For instance wasn’t it all supposed to be about ending stocks, trend line yields, the cost of commercial carry, the spread in futures months, and what’s growing in the field this year?   I think so.  In the short term maybe we can still make that argument.  However what Jim Flaherty said stop me in my tracks because within our agricultural economy we are humming along in many ways like nothing ever happened.  However, what happened in our greater nonfarm economy was huge.  $2 trillion doesn’t lie.  I just hope it doesn’t come back to bite us on the farm.