Grains and The Agricultural Economics of Hope

HOPE JPEG
For many years I farmed and sold grain when prices were below or close to the cost of production.  That’s the way it was post 1981 when I started farming.  So with the ethanol boom changing the game 5 years ago, I moved into delusional territory.  Demand driven markets I was not used to.  $7 corn was delusional.  I’ve said it many times; it wasn’t our father’s market anymore!

Those days seem to be gone now, as a bearish tone has taken over grain markets.  So much so, that today while speaking in Elmira Ontario I put up a slide that said, maybe this is your father’s market again, with onerous supplies and with the unending hope of finding some glints of sunlight.  I had just described to the farmers what 14 billion bushels of corn meant.  Hopefully I’m wrong.

In fact, I probably am.  I’ve seen it so many times before, back in the day, when grain prices retreat to levels once thought untenable.  When will the market recover?  What should I do with my grain?  Have the bears completely run the bulls out of the building?  14 billion bushels of corn tends to do that.

So is there hope?  I say yes, but with so many bears in the market, all leaning on the bear side of the ledger, hope seems so far away for grain producers.  That $8 corn surely changed expectations.  I also received a note over Twitter the other day; from somebody lamenting they had not sold a single bushel of grain this year.  With all the bears looking on, he was feeling particularly vulnerable.

Hope can mean many things to many people.  For instance today in Elmira Ontario, my audience was full of livestock producers, who kind of “like cheap corn!”  They told me of their problems last year about running out of feed and having to buy expensive corn.  They are finding this year much better; cheaper corn means fatter profits for them.

So it is what it is.  What is hope for the livestock producer in cheap corn prices is the opposite of the Ontario grain farmer who loved that $7 corn.  $3.80 corn doesn’t give you that same warm feeling.  However, I’m here to tell you, hope is on the way for grain prices.  The bears might be everywhere, but for those of you with corn in the bin, there are some positive aspects that need to be factored in.  Dwelling on too many negatives is not good for the grain farmer’s soul.

I see hope ahead for corn futures prices on the demand side of the equation.  USDA’s feed demand of 5.2 billion bushels is 900 million more bushels than one year ago.  We’ve also gained 250 million bushels of ethanol demand.  Sure, there are some who believe USDA is drinking their own Kool-Aid, but those demand figures are substantial and not to be sneezed at.  It’s a corn demand renaissance, which is building.  Eventually it will show up in increased prices.  Of course the question is when, late 2014?  I know, waiting for Godot (Darin Newsom’s piece) can be never ending.

The structure of the Ontario corn market will remain a problem.  We’ve talked about that ad nauseam.  That’s a tough problem unlikely to go away until we get back less than 2 million acres.  However, there is our Canadian Loonie.  It might make things easier.

I say that because the RBC Royal Bank economist appearing with me in Elmira said the bank was predicting a 92-cent Loonie by the end of 2014.  That’s a major shift in favour of our Canadian agricultural commodity cash prices.  For soybeans and wheat in Ontario, that will mean much higher basis values.  For corn, it will help stop the bleeding, making corn so much more attractive into the moribund export market.

Today I got a call from a reporter in the Ottawa area asking me to comment on an American analyst who was predicting $2.75/bushel corn in 2015.  I had told the analyst on Twitter that it would translate into $2.35/bushel here based on the structure of our Ontario corn market.  It was all hypothetical, which I told the reporter.  However, I didn’t think he believed me so I emphatically told him I didn’t believe the price of corn would ever go down to $2.75 in Ontario again.  That’s the last thing I need to be quoted as saying.

So the road back to higher grain prices sure looks difficult now.  However, keep in mind there is hope and lots of it.  It might never be the same and acres will surely have to change, but all of this is in our hands.  Marketing is a daily experience.  As we move ahead, keep in mind, hope is in solid supply and surely on the way.

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