Let’s Get Real: Commodities Have the Buzz, But Also the Risk

Commodity BuzzA week from today I will be a guest speaker at the Innovative Farmers of Ontario Marketing Workshop, giving my commodity outlook for 2011, including a look at the Ontario basis.  I like pictures versus words.  One of my favorite slides to put up is from the USDA, which shows corn acres and soybean acres listed by county on a map of the USA.

You can see these maps if you go to the USDA website and poke around.  They always published very late, for instance the 2010 corn acres county map won’t be available until about a year from now.  When I look at the map I always see this preponderance of corn and soybean acres in the US Corn Belt.  Typically, as you move east into parts of Ohio and New York State and even further into New England corn and soybeans are at a deficit.  This fact alone has always represented a great opportunity for Ontario grains as an export market.

Surely the Canadian dollar will have something to say about that. We have some tremendous farmers and production areas in Eastern Ontario and Québec and some tremendous production.  Although production is growing in many of these areas there are still challenges.  For instance this past week I traveled to Trenton Ontario to present a continuing education course I developed called “Agriculture for Realtors”.  On the way I noticed hundreds of acres of corn still out in the snow.  Simply put, there is not adequate storage for this corn east of Toronto and the yields were so strong this year it just made it worse.  Hopefully those producers in Eastern Ontario will get at those acres without much loss.  Canadian winters can be relentless.

Corn prices seem to have caught a cold.  It’s like they try to go up in the futures, but invariably get slapped down.  A few weeks ago I wrote an article about corn demand above $5/bushel.  I called it a minefield implying any time corn prices get that high, commercial end users will not pay.  That seems exactly what is going on now.  Soybeans continually have this insatiable US export demand.  The beans seem intent on not letting corn go too far.

So today, when I spoke in Trenton Ontario that was part of my message to Ontario Realtors.  Still though, when I look at those USDA maps, its pretty obvious the market opportunities for Ontario corn into the northeast US market.  While the southwest of Ontario has more of a Midwest adaptation, Eastern Ontario and Quebec look down at New York, Vermont and points east in the US.  The oddities of geography make SW Ontario a natural corn importer from Indiana, Ohio and Michigan.  At the same time, Eastern Ontario has the potential to export to the northeast.  Last year Eastern Ontario was in such a corn deficit situation, they imported a lot of corn from southwestern Ontario.

Of course I like to say nobody knows.  Last week I read DTN’s Darin Newsom’s column where he recalled predicting sub $6 soybeans last year when he was in Brazil.  At the same meeting somebody from Brazil stood up and said soybeans were going to $13.  Darin gives a great explanation; I’ll let you read it.  The point being the volatility in the commodities market cased by the outside markets is now so vast it’s hard to know up from down.

On my way to Trenton Ontario I was listening to an American analyst from New York City talking about the commodity space.  Of course many non-agricultural analysts think commodities are the hot place to be.  This particular analyst was asked if she thought the commodity boom would continue for another seven or eight weeks.  I almost drove off the road when she said it wouldn’t be another seven or eight weeks but maybe another seven or eight years!  We need to get real here.

I read and listen to a vast amount of commodity commentary.  However, one of my favorite lines about agricultural commodities comes in the DTN disclaimer, which I often read.  The first line goes like this. “Commodity trading is complicated and the risk of loss is substantial.”  That line should always be in the back of our mind.

So as snow falls market watchers will have to be patient with market action in December as we lead up to the January USDA “final numbers.”  Much of the Ontario corn crop has been sold; much of it in Eastern Ontario will have to fight with the snow.  Where soybeans take us is another thing.  They seem to be the real wild card in the market now.

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