About a month ago I heard from former DTN columnist Elaine Kub. She told me in passing that she had been on a spring wheat tour in the northern Plains and that she was expecting based on her observations some fantastic spring wheat yields.  So I wasn’t surprised when I read today that the US Wheat Quality Council Tour’s 2009 hard red spring wheat yield is being pegged at 46.2 bushels per acre up from the 2008 average of 37.7 bushels per acre. That is a huge leap and one that will certainly make wheat mountain that much bigger.
It just so happens that I dipped my combine into my soft red winter wheat tonight. It’s been a very difficult start for wheat harvest in southwestern Ontario as rain showers have been dotting the land almost every other day. However I noticed tonight in the very small acreage that I harvested my yield is very good. It got me wondering about the other yields that are out there not only for wheat but also for 2009 corn and soybeans.
I am writing this in the environment where the nearby soybean futures contract went up $.70 in one day and the November contract went up $.55 in one day. Now I don’t know what is going to happen tomorrow but it’s pretty clear to me that despite the bearish tones in the market there are still some fundamentals flying under the radar that are making these markets quite interesting. Certainly China’s dalliance in the soybean market has made for some interesting trading. Needless to say looking ahead you could still make the argument the weather going ahead is the true litmus test to final yields in 2009.
It’s pretty obvious you what I need on my farm, heat and lots of it. In Ontario it has been cool and the crop went in late. So that means we’re backing up against the frost wall in September. However, let’s leave that for a moment and look at something else that might have an even greater effect on our prices come this fall. I’m talking about productivity, genetics and the dichotomy between soybeans, corn and other grains.
What got me thinking about this was Bryce Anderson’s corn related thoughts last July 30 in his DTN Ag Weather Forum. In it he referred to a report published by Informa, which looked at US corn yield potential in bushel and percentage terms against how yields have deviated from trend over the past 48 years. In the report it said among other things that the 2009 corn crop is rated lower than the 2004 corn crop at 76% good to excellent as of July 20th. Nevertheless the distinction was drawn that technological advancements have improved yield potential since 2004 and this may mean that the cool 2009 summer which is mimicking 2004 might lead to much higher corn yields than you might expect. For instance the study said adjusting the 2004 corn yield for the increasing yield potential would suggest the 2009 yield equivalent of 181 bushels per acre in the United States. That’s hard to believe but something tells me it’s not out of the realm of possibility.
It is a vicious cycle because we all know what 181 The bushels per acre of corn in United States would do for price. In Canada we also know that our American friends are in a much better position than us with regard to government subsidy. It is a important decision for US corn farmers to make regarding the “acre program ” by August 14th.   Depending on what price does, that program might be very valuable to American corn growers. Of course we all know what we have in Canada, bits and pieces of things that do not work.
Putting those Canadian problems aside for a minute what do these technological advancements really mean for markets moving forward. In my mind there is a real division between the corn market and almost every other oilseed and feed grain market. I believe that partly because of what the Informa study said, that corn yields have increased so incredibly since 2004 and that changes the whole paradigm. Looking ahead in the production areas that can grow corn soybeans and wheat, the obvious incentive at least in the short term will be to grow more and more corn.
What does this mean for markets? It may mean in my mind that a country like China with an insatiable appetite for soy protein might have to bid more just to get the world’s farmers to grow beans versus corn. It also might mean that the world’s wheat production will be more conentrated in less developed regions of the world than we’ve grown accustomed to. It might certainly lead to greater volatility in prices in the grains and oilseeds complex simply because technology is moving faster in corn production than almost anywhere else.
So looking ahead we will certainly have our supply surprises like the 2009 hard and red spring wheat. That will put the usual pressure on markets. However we might see a more structural change in agricultural markets simply forged by the technology currently being put in corn hybrids. We saw a bit of that this year when farmers both in the US, Ontario and Quebec planted more corn than was expected based on prices and the cost of planting it.
What does this mean in the future? It means explosive price movement especially in soybeans. It means acreage shifts and changing structures within present and future markets. It means increased volatility. It also means that agricultural safety net policy within Canada needs to change with it. AS we move on into 2009 and 2010, it’s the road ahead. There surely will be no prisoners. Pressing on within this agricultural environment will undoubtedly be challenging.