Old Crop, New Crop, Avoiding the Bin: In 2010 “Hope Is On The Way”

HopeOnWayIs hope on the way?  It’s hard to say.  Last week we had the official prospective planting numbers from the USDA, which always represent the official starting gun on the production season.  In terms of reports the March 31 report is the big enchilada of USDA reports.  It seemed for the last two months we kept looking in the rear view mirror at what was grown in 2009.  The March 31 report puts our eyes squarely ahead.

The March 31 USDA report said we would have 3% more corn acres than last year and 1% more soybean acres.  The USDA set the corn acreage number at 88.80 and soybeans came in at 78.10 acres.  You might remember a certain scribe who lives Under the Agridome said we’d have 90 million acres of corn.  So when I saw the number was not expecting a bearish reaction from the market.  Needless to say, with all eyes turning ahead and bearish market conditions seemingly everywhere our grain markets reacted negatively after the release of the report.  Soybeans had the trap door under them with the front-end month losing $.33 after the report was issued.

It brings me back to the same question I asked at the beginning.  Is hope on the way?  I ask that because for those of us who write in the agricultural marketing media, it seems we’re always looking for a slice of bullishness in a bearish sea.  No matter how bearish the grain market gets I like to give people a little hope.  Sometimes that is very difficult especially when I am bearish by default.  I have built a career telling people that the inherent nature of agricultural economics makes low prices a constant in Canadian farm country.  So when I put my marketing hat on, it’s always hard to get away from that.  As former VP Al Gore used to say, “is hope on the way? ”

It certainly doesn’t seem so at this early stage in the production season.  The carry in the futures market is strong on subsequent months whether that is soybeans or corn.  So that means the over all situation is increasingly bearish and not good for old crop prices.  Add the record-breaking warmth and sunny skies outside my window and you’ve got the makings of the bears gorging themselves on honey.

The only problem is combines aren’t rolling.  There is a lot of production risk between now and November 2010.  I have had more than a few farmers tell me over the last couple of weeks that they should have contracted more crops or sold the old crop months ago.  Sure, being a Monday morning quarterback with the grain market makes you look like a genius.  Keep in mind I always have a very hard time with that.  Nobody knows what lies ahead.  The bottom line is to market your crop where you feel comfortable and to utilize the varied marketing tools that maximize your farm profits.

I had that conversation with a grain buyer last week in central Ontario. At the present time in Ontario there is lots of old crop corn in farmers bins.   This corn is in the bins for whatever reason, but it is mainly there because farmers built the bins and put the corn in them.  Nobody is wrong doing what they do with their corn.  Needless to say, I’ve often thought that the goal should be a marketing strategy to avoid the bin altogether.  My saying goes, just because the bins shine in the late autumn sunshine, doesn’t necessarily mean that they should be filled up.  There are a myriad of marketing tools, which make it advantageous to avoid the bin.  However, that’s against almost all the grain-marketing buzz in farm country.  You often hear grain professionals’ say, build bins.  I have never understood why?

That’s not to say that I don’t have bins, because I do.  However, as I get older I don’t like filling them up as much as I once did, partly because I try to market accordingly and there is nobody else to dig them out other than me.

Still, what about that question about whether hope is on the way?  With the numbers the USDA gave us, can we realistically expect a futures bounce or a sustained futures price rise?  Or does “our hope” depend solely on cash price opportunities with the Canadian loonie heading back down into the 80 cents range?  Or is it something else, like the seasonality of grain prices into June and a once in 20-year drought to bail us out on the price front?

I can hear many of you saying, Phil are you crazy?  In 2010, that’s never going to happen.  Well, let me tell you, that’s maybe where the hope is.  I’ve learned to never, say never.  Yes, I’m old enough to say, I’ve seen it before.  What about 2010 and future USDA reports?  I dunno, but I refuse to believe, hope is not on the way.  As farmers, we’re programmed this way, and sometimes, like the spring of 2010, you just have to believe.