Ducks on the Straight Header: Mother Nature and USDA Hold the Cards
Next week we will be finding out the actual planted acreage of crops that American farmers have growing in the field. There’s been a lot of conjecture over the last few weeks about crop ratings as farmers position their hedges against what they feel is in the field. With much of the Corn Belt experiencing wet conditions there is certainly a lot of skepticism regarding USDA numbers. Next week at this time we might have a totally different marketplace.
So going into next week I just want to remind everybody about who is right when it comes to forecasting acres. It is the USDA; they set the goal posts with regard to acreage and yield forecasts. Many of us learned a lesson last January 12th when the USDA surprised the corn market by raising 2009 corn production. The market was leaning a little bit the wrong way and it quickly corrected. There was farmer fury, I think on every concession throughout North American farm country. However, at the end of the day the USDA decided to move the goalposts regarding crop size and despite the skepticism never looked back.
So what I’m saying is on June 30th, those will be the numbers. For instance, at the present time the USDA is sitting at 88.8 million acres of corn. So on June 30 if they come out that day with the number of 90 million acres, it’s 90 million acres. Taking the USDA numbers seriously is about the best barometer we have.
I say that because I think we learn the hard way. The January 12th USDA report was certainly classic for that. The upcoming June 30th acreage report might be the same. I tend to look at these reports a bit differently than my DTN colleague Darin Newsom who has often expressed the opinion that USDA reports are overrated. I understand Darin’s reasons because he looks at the six factors DTN marketing strategies that are very solid. For instance I find “futures spreads” a great indicator of market behavior. However, USDA reports tend to stir emotion in my readers, listeners, neighbours and certain market players. The USDA reports have resonance on the back concessions of Ontario farm country. They also sometimes act as turning points in market psychology. That’s a major reason why when I write “Market Trends” for the Grain Farmers of Ontario, I give my analysis post USDA reports.
The problem for Canadian producers this year is many of us will not have a crop to sell. For instance as many of you know Western Canadian agriculture is going through one of the toughest, wettest springs in recent history. I heard from one farmer this past week from the Interlake region of Manitoba who told me that his 2010 crop might be lost from wet weather. He also documented for me the difficult times that Interlake Manitoba farmers have had over the last three years. In fact he even told me that it was so wet last fall that he had a duck ride on his straight header for a couple hundred yards. It was a tough story but one that is far too common in Western Canada this year. So when I talk about the skepticism surrounding USDA reports, we should all remember that maybe Mother Nature could still be our greatest nemesis.
While the USDA report next week will surely influence market direction, it cannot be discounted how Western Canadian markets affected by the wet weather will influence farm pricing throughout the rest of North American farm country. For instance with the canola, oat and HRW markets being heavily impacted by Western Canadian disaster reports the movement of grains is shifting. If there is not as much canola, it cannot reach Ontario crushers as easily boosting new crop basis values for Ontario soybean producers. With canola and soybeans being “loose substitutes” the loss of one boosts the price of the other. It’s the same thing for HRW affecting the other wheat classes. Unfortunately, even in 2010 one region’s misfortune is in other region’s gain.
Take the beautiful canola growing area of Peace River northwest of Edmonton Alberta. This past week they enjoyed the longest day of the year was almost 20 hours of sunlight, which is exactly why they grow such nice canola there. I commented to a colleague from northwest Alberta that these growers must be pleased with canola prices based on the problems in canola growing country elsewhere in Western Canada. He retorted back to me that it was dry in Peace River and the canola needed rain. So it goes, there is always something missing from the agricultural production equation.
So with our hedges set and our heads held high, we all look toward one of the most critical marketing periods, the next two weeks. Remember, the USDA sets the goal posts and they don’t even think twice about picking them up and moving them at their own convenience. At the same time, remember that duck riding on the straight header in the Interlake region of Manitoba. Mother nature still controls everything. It’s a long time till harvest time. Nobody said this ever was going to be easy.