Weather and Flawed Market Signals: Not Everybody Had Their Eyes Open

Flawed MarketsToday I finished planting corn, a full six weeks after I completed that same task last year.  I had never planted corn in June before and its experience I’d rather forget.  Hopefully, the rest of the way gives us some benign weather come fall.  With soybeans yet to go in Southwest Ontario, the weatherman is surely in the crosshairs.

With that in mind I was interested in the official forecast from Environment Canada.  After probably the wettest spring on record in southwestern Ontario, Environment Canada is musing about a hotter than normal summer coming up.  I never used to put a lot of credence in long-term forecasts, but more and more I’m reconsidering.   I have listened closely to DTN’s Bryce Anderson over the past several years as he gives seminars at the Louisville Farm Show.  This past year Bryce was predicting a wetter than normal spring season and that’s exactly what we got.

He has been right more than once and if you ever get a chance to listen in on one of his seminars, he makes weather interesting.  I never realized how uneven temperatures in the South Pacific could cause me such angst in Southwestern Ontario.

So if Environment Canada is right for this coming summer, I hope they add a bit of moisture into the equation.  It has been clear since last summer that the USDA had helped put us in a very tight corn situation.  You might remember the corn flip-flop last year when USDA said we had corn in January but it disappeared in June.  That might seem like a distant memory now but with the spring summer weather starting to manifest itself, our corn market is making new highs in new crop months. If we get a bad growing season this year, all bets are off.

Many would argue that that has already happened in the Eastern Corn Belt.  Take my own personal situation under consideration for a few minutes.  This is the first year in my career that I have not been able to plant my intended corn acreage.  So, that means that about 10,000 bushels of corn which I was expecting suddenly are for not.  You multiply that across the Eastern Corn Belt and that is a lot of bushels not getting into the market.   Of course the market has responded to this late planting over the last few weeks.  How this will manifest itself in the summertime when it gets hot and dry is a whole other ballgame.

In Ontario we were expecting a 2 million acre corn crop this year.  If you take that acreage and multiply that by our favourable yields over the last few years you’d end up with 300 million bushels of Ontario corn on the ground in the fall.  This year is completely different. I’ve heard some say 1.6 million acres by the end of today.  I think that figure may be even lower.  It means that Ontario will probably have 60 to 80 million less corn bushels come this fall.  That completely qualifies 2011 as an oddball corn year for our supply and demand tables.  End-users will surely be scrambling to meet their needs.

This has resulted in a huge appreciation in new crop basis levels.  For instance, today you can contract corn off the combine for $6.50 a bushel.  It was only a month ago that this was close to $5 dollars.  Old crop values have been boosted by the realization corn is going to be scarce in the province, especially in August and September.  When will we see positive corn basis values has been the number one question of many corn producers.  At the end of the day, Ontario end users did not bid up new crop values soon enough.  With heavy rains inundating southwestern Ontario, the chance to produce their traditional captive supply was lost.  This means in future years they might not take it for granted like some may have in the past.

Does it make for jittery markets?  Yes, I know, that’s a dumb question.  It surely makes for some jittery farmers in southwestern Ontario who can’t get a crop in.  Needless to say, there are many people in the western corn belt that don’t have the same problem.  In fact our Russian friends have been enjoying a bit of payback this week with their announcement that exports will be starting again.

We certainly got here as farmers with our eyes wide open.  However, I’m not so sure everybody else did.  The USDA played a role last year in producing market signals, which were negative for corn, when they should not have been.  There sure are other end-users in the mix as well.  Looking ahead, it’s all up to Mother Nature.  Sometimes the weather can be cruel.  In 2011, there surely isn’t much room for that.

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