A Seismic Shift in Canadian Agriculture: How 2007 Changed Everything
Get ready, get set, go! That’s what farmers looked like to me last March 22nd in Tilbury Ontario as I finished my last speaking engagement before spring work started. Last winter it was all about the ethanol gold rush, as Canadian farmers were in the initial stages of a bull market which most of us were grasping to understand. As 2007 winds down, it’s interesting to look back. What worked? What didn’t? Who was right and who was wrong?
When I look back on 2007 I think you can tag the USDA March 30th crop report as the consummate event, which affected our agricultural economy in a dynamic way. All last winter farmers were told the March 30th report would be the true litmus test with regard to corn acreage for 2007 going forward. When the USDA came out and set US corn acreage over 90 million with soybeans dropping to 67 million, markets reacted violently. Corn dropped and soybeans rose. When the frost came to the US wheat crop shortly after, it sent the wheat complex cosmic.
The June 29th USDA reports confirmed what March 30th projected. However, it even emphasized it more USDA saying corn acreage would be a whopping 92.88 while soybeans were cut radically down to 64.08 million acres. Ethanol refining faltered briefly while the soybean complex started its long move up. In this new world farmers struggled with their marketing decisions.
That was that. As farmers we can all get around on crop size, crop conditions, usage, etc. However, for Canadian farmers much of the futures price run up was tempered by a Canadian dollar run wild. On November 7th it reached $1.1009 U.S. That sent basis levels to deep negative levels, something that we’re still dealing with today.
The effect of that on the livestock market has been almost as catastrophic as BSE. Over the period of the last ten years many barns have been built in Eastern Canada with the cheaper dollar. Now with the market completely deflated and our US market compromised by our loonie, it makes it that much worse. Most of us if we were honest would admit to never seeing the effects that par dollar would cause. For most of us, that was like looking into some futuristic science fiction novel.
Going forward we’ll need to answer a few choice questions. Can these high grain and oilseed futures prices continue into 2008? Are we in a market environment where we’ll break through levels never seen before? Will the biofuel revolution fizzle as the food versus fuel debate gains even more traction? Will the American Presidential election be good for grain and oilseed prices? Will the Bank of Canada continue to cut interest rates in a desperate attempt to curtail the loonie? How about the US Federal Reserve? Will they do the same in an attempt to cover up the sub prime mortgage disaster?
It all will go along swimmingly until there is a problem. Also the events of last Thursday sway true. Nobody expected the assassination of Benazir Bhutto in Pakistan. It shocked the world. Events like that come along which nobody can count on. The grain and livestock markets are no different. If there is any type of a weather problem or some geopolitical event the soybeans complex will react violently. There is enough corn out there, but with an acreage cut coming, even corn will be under the gun. As long as the greenback stays down US grain and livestock will look so much more attractive to foreign buyers and futures prices will reflect that.
Lost in this late 2007 run up in grain futures is our Canadian agricultural policy cauldron. Much has changed since those bad days where farmers were forced out onto four lane highways and parliament’s steps trying to get government to forge an agricultural policy that works. Nonetheless the CAIS program, long loathed within the pages of this column is still here. That’s hard to believe especially since nobody will admit its worthy even within the halls of government. The Conservatives have changed a lot but they’ve maintained CAIS in future years with new names and the same old garbage.
This will bite hard in a 2008 Canadian federal election. However, much will depend on where grain prices are at the time. Much will depend on where the Canadian dollar sits. Much will depend on the decision of a court on the federal government’s appeal regarding barley marketing with the Canadian Wheat Board. If the agricultural political stars align the right way, the Conservatives will avoid losses because of their deception on CAIS. However, if any one of these is out of whack, there surely will be Conservative losses in Canadian farm country further marginalizing a government with a tenuous hold on power.
As for me, well, I did predict a 13 billion bushel corn crop for 2007 last January. However, I missed the Canadian dollar, I missed the big run up in soybeans and I missed many other things. As I look ahead I see price rationing in grains and oilseeds because there are limits. However, nobody knows when, where and how much or if at all. In 2008 it might be more of the same. The challenge for farmers is to be engaged in the management process. At the end of the day, a year from now, we’ll stop, look around and pick up the pieces for another year.
Wishing All of You a Happy New Year