There might be a few issues for my corn on some of my heavier clay fields.  Emergence always is a problem on these fields especially when they get inundated with heavy rain.  It is just another hiccup on the road to payday.

The road to payday certainly hit a few potholes on May 10th as USDA weighed in with the monthly WASDE report.  Prior to the report traders were expecting a reduction in both corn and soybean ending stocks.  This was expected because the US national corn basis has been at record levels and physical corn is hard to source in much of the United States.  At the same time soybean exports have been extremely good to China and we all know that the South American soybean crop has not been as good as expected.  So when the USDA released a report on May 10th, that information was already factored into the market.

Then the USDA landed its spacecraft on Greenland to measure the pineapple crop!  In other words, the USDA is always full of surprises and this was no different.  The USDA actually increased total crop corn ending stocks to 851 million bushels more than doubling the stocks to use ratio to 13.7%.  This was a huge surprise as most trade analysts had expected old crop corn ending stocks to drop down to possibly 600 million bushels.  The USDA also increased expected yield to 166 bushels per acre on 95.5 million acres.  With deferred corn futures months inverted, it was dumbfounding.  DTN Senior Analyst Darin Newsom in his webinar said it made no sense.

Of course there was much gnashing of teeth over these USDA corn numbers.  July corn finished almost $.20 lower on the day and December corn finished about $.10 lower on the day.  At the same time the USDA reduced old crop soybeans by 40 million bushels, which was at the low end of trade expectations.  The July and November soybean futures contract increased approximately $.25 after the report.  The USDA attributed the increased corn ending stock number to a reduction in feed usage.  Ethanol usage remained the same at 5 billion bushels.

The new crop corn ending stocks were increased to 1.88 billion bushels, while new crop soybean ending stocks were pegged at 145 million bushels, an incredibly low number for USDA in the May report.  The crux of the matter is USDA is predicting a huge corn crop with all the ramifications and soybeans not so much.  It will be fascinating going into the June 29th USDA report especially when the market will be trading 22 hours.  Standing marketing orders will be extremely important on that day.

In Ontario, it is pretty clear that soybeans are winning the new crop price direction but not necessarily acres.  With Ontario’s wheat crop being cut in half because of poor planting conditions last fall about half a million acres are in flux.  I believe at the end of the day we will have 2.1 million acres of Ontario corn and 2.7 million of Ontario soybeans in 2012.  The increase in corn acres is certainly weighing on new crop prices currently at approximately $4.42 a bushel.

Of course the question is will Ontario farmers get another kick at the can to book higher prices for corn looking forward.  My crystal ball is like anybody else’s but surely there is a tremendous amount of production risk going forward.  There is also seasonality at play.  Needless to say, it’s shaping up as one of those years where if the crop is made by July 4th, higher prices might be in the rearview mirror for quite some time.

However, who knows?  Soybeans seem to be king this year, but we all know they need rains in August to make a good crop.  We have deferred future spreads in soybeans all the way out to November 2013.  We even have deferred future spreads in old crop corn.  The problem lies in the market chasing headlines.  Our noncommercial speculator friends read the headlines and then head to the door.  Much of that has been happening over the last few days.

I haven’t even begun to talk about the slowest moving train wreck in Europe.  Yes, it is still there.  There is also demand, which could even grow more resilient if the nonfarm economy was better.  So there are many factors buffeting markets as we head toward the middle part of May.  This North American crop is just an idea right now.  It’s not in the bag.  Just keep those standing orders ready.  There will be more pricing opportunities ahead.

It has been a very different spring, a very early spring. In fact, you could say that we had ultra early planting conditions, which were very favorable.  However, most of us do not plant corn in March.  April has certainly provided some good planting conditions and my corn is almost set to break through to the surface.  Cold temperatures have held everything back until now.  Hopefully today’s temperatures will jumpstart a trend.

If you follow me on Twitter or read my marketing writings you will know that I think it is the year of the soybean.  With new crop cash prices at approximately $12.75 a bushel down from $13 only a week ago compared to $4.50 corn, I’m thinking the switch should be on to soybeans.  However, not everybody is me.  It is well known in Ontario farm country that we all like growing corn, so switching to soybeans is such a psychological change for many of us.

In Ontario soybean yields are increasing at .32 bushels per acre per year.  At the same time corn yields are increasing approximately 2.3 bushels per acre per year.  In the last 5 years, it is been approximately 5 bushels per acre per year.  In other words, despite the price of soybeans, hybrid corn is agronomic-ly superior to soybeans.  With our eyes closed, all things equal many of us can expect consistently high corn yields and not so much for soybeans.  So give me a very high price for soybeans and that’s when I’ll really start thinking about switching.

The argument is compelling for soybeans.   DTN Market Analyst, John Sanow in his recent column “How Much is Enough” put it this way.  “The strengthening inverse in futures spreads all the way out to November 2013 states unequivocally that it doesn’t believe acreage will come in anywhere near a level needed to prevent a critically tight stocks situation through the 2012-2013 marketing year.”(John Sanow)  In other words, our commercial end users know there aren’t enough soybeans and this is a problem.

Under one scenario the stocks to use ratio for soybeans will drop to 4%, the lowest on record.  We also have the noncommercial speculators holding a record number of long positions.  That position has weakened over the last day or two, but it is clear soybeans have a lot going for them.

In a market like this where we are seeing extremely healthy prices sometimes it’s easy to forget maybe we should sell now.  I’ll let you think about that one for a minute.  Of course one of the problems we have in Canada is the value of the Canadian dollar, which is currently trading at approximately a $1.01 US.  Of course it has a negative effect on our cash grain prices and effectively takes the fun out of imagining record cash prices.  What it means is that despite soybean futures prices in the teens, that may not translate into the same prices for Canadians as our loony is feeling the testosterone.  The soybean basis in Canada is particularly sensitive to foreign exchange on our Canadian dollar.

Despite our issues with the Canadian dollar, it is hard to imagine Ontario farmers responding by planting more soybeans this year.  Is the nature of the beast with a good planting weather we had in April guys would stop planting corn.  Last fall we got about half the Ontario wheat acres in the ground because of wet conditions.  So there are about half a million Ontario acres looking for a home this spring.  I expect approximately 2.7 million acres of soybeans to be planted in Ontario and 2.1 million acres of corn.

Adding to these tight soybean fundamentals was the announcement this past week from the Chicago Mercantile Exchange that effective May 20, 2012 they will initiate 22 hour trading of agricultural commodities.  So in other words, the market will almost never be closed.  There will be no more waiting until 10:30 in the morning to see what the market is doing.  The only time it will not be open is from 4:00 to 6:00 PM, Monday thru Thursday and Saturday and most of Sunday.  So get those standing orders for grain ready.  When the USDA announces actual plantings on June 29th, it will be like the movie “Trading Places”.

What’s it all mean?  It means soybean prices will redefine volatility.  The CME is providing a forum in their new trading hours to make that volatility even more extreme.  Meanwhile, even at reduced levels, corn prices are still very profitable.  It means we should have a good year, however it might be a bit more exciting than usual.  Just make sure, as those planters roll, to work safe.  It never says on a tombstone, I wished I’d work harder.

In Ontario this year you could have started to plant corn in March.  I took a short vacation to Florida during March break and was actually told it was warmer back in Ontario.  I actually follow a field of corn on Twitter that was planted on March 20 near Petrolia Ontario.  I don’t think there has been much growth since then, I think I’ll take April 20 over March 20 any day for planting corn in Ontario.  Needless to say, it is been so cold this week, I’m sure my seed corn is shivering in the soil.  Give me another day and I’ll be done planting corn.  Last year that didn’t happen until June!

The corn market is so yesterday.  Or at least it seems that way with soybeans getting all the publicity lately.  The long-term outlook for the corn market continues to be down but the old crop supply and demand situation is increasingly tight.  However, our noncommercial speculator friends aren’t much interested in corn when soybeans have so much more opportunity to shoot higher.  It seems our investor friends can understand a short crop in South America and a huge perceived new corn crop seemingly already in the bin.

In the last edition of Market Trends which I write for the Grain Farmers of Ontario, I cautioned my readers by telling them the noncommercial speculative position in soybeans was at record levels.  So as we move ahead we should tread gingerly on the sales trigger.  With a $.70 limit in soybeans, you can bet that we will see that the spring.

That led to this conversation I had this morning.  While planting corn my crop advisor stopped by to make sure I was planting his variety.  He mentioned as he walked over to the tractor that he was pleased because the corn was already sprouted even though it only been planted about a half hour.  I guess you have to be there. He then asked how high soybeans were going to go.

I shot back by saying about $16.70 a bushel for soybeans.  I said that because I saw it somewhere on twitter and I wasn’t expecting the question.  My crop advisor friend retorted that in his opinion if that is the case basis levels would be every bit as negative as futures are positive.  In other words, soybean futures might go crazy but processors in Ontario are not going to pay ever-higher prices for soybeans.

I agreed with his assessment.  It is true that soybean prices right now are higher because both the commercial and noncommercial side of the market are getting into the game.  On the one hand, you had the South American crop continue to get smaller this week, as there was one report that said the Argentinian soybeans crop would be below 40 MMT.  Of course we also had the erroneous reports that Brazil was going to temporarily ban the export soybeans.  This has put obvious juice in soybean fundamentals.

However inconvenient the lack of soybean supply has become to some, China is still devouring soybeans at record rates.  The production problems in South America has led Chinese soybean buyers to purchase ever more US soybeans which again is helping the price.  Our noncommercial speculative friends can see this and are simply piling on.  Meanwhile, I’m out there in the cold planting corn as fast as I can.  Ditto across Ontario, Illinois and Ohio.  What are we thinking?

I’m thinking that corn might have another run in it.  The ship is just getting too crowded on one side now for its own good.  You cannot blame our speculator friends, they see all the supply concerns with soybeans and a great demand compared to this huge 95.5 million acre corn crop presumably a fate accompli.  You know there has to be a reckoning.  The market will surely take care of it before June 29th, if not on that date when the USDA announces their actual planted numbers.

The landscape between now and then will surely be volatile.  I expect a $.70 limit move in soybeans maybe more than once leading up to June 29 when we find out how many beans got planted.  Nobody saw the South American drought coming.  Is there another black swan around the corner?  I should be done planting corn tomorrow.  There is no need to keep going.  With these markets swirling around me, I just hope that is a good decision.

Land prices to me are not top drawer despite being asked about them almost constantly.  I’ve spent the last few weeks preparing to crop my land like I have over the last 35 to 40 years.  Preparing to plant is almost more stressful than planting.  I am hardwired to farm, to put seeds in the ground and not necessarily think about how much that ground is worth.  I know that that is not totally correct in terms of how agricultural economists should think, but the ground is part of me.  These land prices I’ve never dreamed of.

The question is how sustainable is it over time?  My feeling always is that we cannot judge the future of land prices based solely on what has happened in the past.  In other words, there will be many in farm country that might say they have seen it before.  For instance, when in 1981 interest rates went over 20% land values crashed.  For instance I was able to buy land cheaper in 1991 that I did in 1994.  I cannot say whether that will happen this time.

In southwestern Ontario recently we had 480 acres sell for $5.8 million.  In another transaction, we saw 133 acres sell for $1.4 million.  These prices are triple what they were 3 years ago.  It appears that some buyers are too afraid to offer less in fear that somebody else will pay the price.

In my mind the reason land prices have gone up so quickly are twofold, low interest rates and high agricultural commodity prices.  Yes, low interest rates make land easier to pay for but also are a double-edged sword.  For people with money lower interest rates are a bad thing because they cannot get any return on their investment.  High commodity prices, especially a price of corn over the last few years has led to scan some profits in farming.  These factors have led to a perfect storm for farmland prices across Ontario and the US Corn Belt.

Key in this debate is when it ends.  In other words, when do interest rates go way up and went to agricultural commodity prices go way down?  If you’ve been farming as long as I have you know the 2nd part will at least come true.

So when Mark Carney, the Bank of Canada governor mentioned the other day that we may be seeing higher interest rates in the near future based on the health of the Canadian economy, it was telling.  At the same time we have seen a general decline in corn soybeans and wheat over the last month.  New crop corn prices for example in Ontario are almost down to the pre-ethanol era.  In other words the perfect storm is ending and will land prices return to more traditional values?  Will the farm land market cool into summer?

As I like to say with the grains, I don’t know.  However, I think so, and maybe in the future big-time with land going down.  There is no question that classic economics tells us that as you print money like the US Federal Reserve has been doing, inflation will rear its ugly head one of these days.  The way central banks deal with inflation is by raising interest rates, cooling the economy, controlling the money supply to control prices.  Eventually Bank of Canada Governor Mark Carney and even US Federal Reserve chair Ben Bernanke will be forced to do that.  When that happens interest rates will go up and one part of this perfect storm will be over.

At the same time you would expect that investment opportunities in the non-farm economy would improve.  In other words, the perfect storm for investing in farmland will cool and prices will come down to better reflect the economic returns from farming.

This morning the CBC commentator asked me how this would affect food prices.  I responded very quickly by saying it had nothing to do with food prices, that consumers want cheap food and governments make sure they provided it.  That’s a standard response of mine and I was quite surprised I got to say it but the commentator really had no idea how this land price thing was playing out.  However, the issue itself has gained enough traction that you have CBC radio across Ontario bringing it right out into the open.

Of course, if history tells us anything, the big rise in farmland prices will not end well.  Of course the question is will history tell us anything this time?

I have often said we work so hard to get ready to plant and when we actually start planting, things slow down.  In other words, when you are sitting in a tractor planting seeds instead of preparing to do it, it seems much easier.  Just remember when you are out in the fields planting corn and soybeans the spring, work safe.  There is nothing so important that we need to take chances.  Get your work done but do it in a safe manner.

I had an interesting week.  I actually heard from two of my editors.  You might think this is normal but it actually rarely happens.  One of my editors informed me that I would no longer be writing Machinery Guide for Country Guide magazine.  That stung a bit as I always put a lot into that part of my career and not being able to continue was disappointing.  On the same day I heard from another one of my editors who wanted me to vent a little bit more about issues of the day and bit less commentary on our grain markets.  It made me think that I needed a snowstorm to go take a walk in.

It got me thinking about venting for the sake of venting. If you are a farmer you will know the proverbial story about the cost of the ketchup versus the cost of the bottle which its put in.  Or the other story is always the proverbial cornflakes box.  How much does a box of corn flakes cost versus how much the farmer gets for the corn inside?  I’ve been down that trail many times before venting about the injustice of it all.

The hard part is making a difference with all this venting.  As many of you know I used to be quite involved in farm organizations.  That was a long time ago but in 2006 when farmers were rallying across Ontario, I took a lead role in that.  I’ve always believed in an agricultural safety net which works for Canadian farmers.  In 2006 we came close to getting one but as 2012 is growing old, sadly, we still are not there.  I just recently got my Agri-Stability statement from who knows when, telling me I was not eligible, for who knows what.

In Ontario, we have the risk management program supported for one more year before it is eliminated.  Of course we also have our production insurance and lots of politicians running around telling us how much they love us.  There are clawbacks of all these safety nets depending on how much is paid out from a corresponding program.  None of it makes sense.  What is worse is that even the people that are supposed to know in government don’t know.

In my mind governments are at fault for this.  I know farmers arne’t because I was there when much of this was conceived and I saw governments getting it wrong all the time.  In many ways it is extremely disappointing to me because in 2006 I thought we were on the cusp of something and essentially it is been sandbagged by the weight of the bureaucracy, which didn’t know what it was doing.  Even sadder is the fact that they cannot even be blamed because they had no guidance on what goals governments wished to attain with their safety net funding.  It is led to a point today where we are spending millions of dollars for nothing.

Current Canadian Minister of agriculture Gerry Ritz is one of the worst I’ve ever seen in terms of policy.  He has little understanding of agriculture in Eastern Canada and will likely oversee the dismantling of Canadian supply management.  However, just this morning he announced a new $500 million loan program from the Farm Credit Corporation.  It will have variable rates at prime plus a half percent, plus special fixed rates with no loan processing fees for young farmers under the age of 40.  This comes at a time when the Bank of Canada governor wants Canadians to get out of debt.

It’s like we are in an agricultural policy fantasyland where nothing works but it doesn’t matter.  Some in our federal government have even recognized it and subsequently cut the agricultural ministry more than any other department in percentage terms.  It is a total mess on the agricultural policy front.  Thankfully, our grain markets are not so much.  So that’s my venting for this week. Expect a lot more of it to come.

Of course now I plant my corn with a bigger planter and a tractor with a modern cab, satellite radio, air conditioning and the best climate control.  Gone are the days where I stopped to eat lunch and thawed out in the truck.  I have thought of those times this spring because of the very unusual weather we have had in southwestern Ontario.  The only thing that is stopping me from planting corn is the calendar.  The temperature is about right.  It’s cold out there, just right for planting corn.

This year in Ontario, some corn went in the ground in March.  Who knows whether it’ll end up ok?  ” Ultra” early planting is a lot different than planting in late April.  In 2010, I started planting on April 19th and finished on April 23rd.  About 2 weeks later all the corn was frozen, but luckily it came back to life.  Needless to say, it got so cold that I was probably only within a degree or 2 of a total wipeout.  I suppose that’s one reason nobody recommends we plant corn in March.  However, our American friends have been going at record pace.  It’s almost like you can see corn mountain building.

I say this without a single kernel planted on my farm.  Ditto across much of Ontario farm country.  There are lots of risk ahead, lots of hills and valleys for market watchers.  With corn planters rolling in the United States it would seem our American friends are well on the way to building corn stocks back to 1.6 billion bushels.  Based on where we see things now, that’s about where corn-ending stocks will be a year from now.  So let’s say altogether, laugh out loud. (LOL)

That’s how it looks from the agricultural classroom.  The only problem is with the South American soybean crop being lowered almost every day, there aren’t enough soybeans around especially in our new crop world.  The soybean market has rallied over the last few weeks trying to make that argument.  So you would think that 95.9 million acres of 2012 US corn will grow smaller into June 29th when USDA releases its actual plantings report.  Even with fewer acres I cannot see a 164-bushel trend line yield.  That’s why so many people are skeptical about the 2012 corn acreage figure.

This has turned me into a soybean bull.  I cannot see a bearish scenario for soybean prices.  Our American friends despite the run-up in soybean futures prices will likely be reticent to switch large acres into soybeans.  Our South American friends have had some bad luck with dry weather and their crop is much smaller than projected.  More importantly, when South America gets in trouble, typically their crop gets smaller.  Will this time be any different?  I don’t think so.

The lens on American 2012 crop production is definitely clouded because of their insurance program, which favours planting corn.  Many US producers have signed up for this and will grow corn regardless of new crop price.  The prognostications in Ontario are much different.  Last year, Ontario had 1.88 million acres of corn, 2.44 million acres of soybeans, while harvesting 1.095 million acres of wheat.  Going into the 2012 planting season, we’ve got about 650,000 acres of wheat in the ground after the wet fall of 2011.  With new crop soybeans prices around $13/bushel and new crop corn at $4.70, I see a big switch to soybeans.

Earlier I had thought we would see about 2.3 million acres of corn in Ontario.  I no longer believe that, thinking it will be very difficult to get to the 2 million acres mark.  However, with new crop soybean prices the way they are in Ontario, I expect a big jump in soybean acres.  I’m thinking will have record soybean acreage in Ontario this year; possibly close to 2.6 or 2.7 million acres.  Prices are a great fertilizer and clearly, new crop soybean prices are winning the day.

So give me another 10 days or so and I’ll start putting corn in the ground.  Ditto for many other Ontario farmers.  It may still be cold as ice, with snow flurries fluttering around us.  I’ve seen that many times in April.  The big question will be when these corn planters stop and when soybeans drills begin to roll.  That’s the quintessential question that will need to be answered by the market this spring.  We’ve got to have those soybean acres.  But the coast is clear.  Those corn planters are ready to roll.  Get out of my way.  This is the biggest wild card of the spring of 2012.

I will have more about the USDA for next week.  Market action over the past week has made it hard to tell whether the report has been released or not.  The May corn futures contract has lost $.70 in about one week.  If that isn’t volatility, I don’t know what it is.

It sure is shaping up to be a corn friendly planting environment over the next 6 weeks.  The new crop corn market is reflecting that, as prices this year have been much lower than were offered last year at this time.  It is not often you get a chance to work ground in March, but this past week I worked over about 80 acres, getting it ready for corn in another 3 weeks.  That was very unusual for me, but if you multiply that across the whole North American Corn Belt, you can see the reason that new crop corn futures have been going lower.  The futures market predicts the future and it thinks there’s going to be a tremendous amount of corn.

So let’s leave that crystal ball until next week. We should have some violent market action on Friday and Monday, but maybe things will settle down after that.  It is a long way until harvest time.

In the meantime there is been no shortage of news regarding agriculture in Canada.  Today, the federal government released its budget for 2012.  We found out that the government is cutting $5.2 billion of government spending.  Remarkably, the agriculture department is facing the deepest cuts of any federal department being reduced 9.02% into 2014/15.  This represents a reduction in spending of $309.7 million.  If you ever had hope that the federal government was going to contribute to Ontario’s risk management program, you can forget about that now.  Federal expenditure on agriculture continues to decline and seems to be accelerating.

The specter that cuts were coming was not unexpected.  The Harper government has been spending money like drunken sailors over the last couple of years, partly in response to address the financial meltdown of 2008.  The stimulus funding has to be paid back some time, as there were cuts across the board.  I don’t know how agriculture seem to get the biggest percentage but it may reflect the fact that agriculture minister Gerry Ritz doesn’t get it.  I am clearly in that camp.  How could he face farmers and actually defend this?  It does not add up to me.

Of course $309 million dollars in cuts to agriculture pales in comparison with the 1.1 billion dollars cut to the Department of National Defense.  I could go on and on.  We are losing our Canadian penny, getting a new national park near Toronto and also seeing a 10% reduction in CBC funding into 2014/2015.  It is what it is, and at the end of the day Canada’s net debt to GDP ratio is at 36.6%, the lowest of any G7 country.

To top it off this week we also had the provincial budget in Ontario.  Once again we saw wide service cuts to agriculture and many other ministries.  Telling in the cuts to agriculture was the risk management program, much fought for over the years by Ontario farmers.  It is being cut, ignominiously, with a lame excuse that they are giving up trying to get the federal government to help fund it.  It will last for another year but then will be gone.  I can remember standing out in the snow at several farm rallies fighting to get that program.  Now it is leaving the scene and we are starting all over again.  There’s something wrong with that picture.

It sets up an interesting situation.  The Friday USDA report may be very bearish, piling on a very bearish week.  There is a chance grain prices may go down to cost of production levels again.  Then we’ll need that safety net we have fought so hard for.  However, now it’s gone.  Some things just go round and round.

In many ways that echoes from times past and maybe we don’t want to go there.  Despite the recent losses in corn and wheat, the world is still demanding grain.  This may be even a tipping point.  Who knows?  The USDA gives and takes away.  Ditto with government.  The hard part is when it happens at the same time.

It is not the most pleasant job in the world because I cannot farm it out to anybody else and bending, pulling and pushing socket wrenches while wielding a hammer affects me differently these days.  Let’s just say I’m getting older.  Interestingly enough, that fact alone is not lost on me as I visited the Grain Farmers of Ontario March Classic last week and saw a plethora of young farmers in attendance.  It seems there is an infusion of youth into Ontario agriculture.

That was brought home to me over the last 10 weeks.  During that time I spoke at about 13 different grower meetings across the province with younger people present everywhere.  Seeing twenty something young people starting to farm it is so different from just a few years ago.

It has to do with optimism in our industry.  For instance at the Grain Farmers of Ontario March Classic I sat with a young farmer, Brendan Byrne from Essex Ontario.  Brendan is probably half my age or a little bit older.  Another young farmer who sat beside him joined him.  With me there, invariably the question comes up about grain prices.  A well-known Ontario grain analyst, who chimed in with his good tidings, joined us.  At that point, one of the young guys at the table told another he couldn’t believe the optimism out there in farm country.  That alone worries him.

It was a telling moment to me because it was so true.  At one time, only 6 years ago a gathering of Ontario grain farmers in March would likely debate about how many tractors to take out on the highway 401.  Sure, those agricultural economic times are past and if you ever needed evidence of that, the March Classic was a good example.  The Grain Farmers of Ontario did an excellent job bringing in speakers who were captivating.  They talked about innovation, success and about taking risks, which was like fuel for the soul of those present. It was an excellent conference.

One noted exception to the optimism at the March Classic was some cautionary words from FC Stone grain analyst Cal Whewell, a favorite of Ontario growers.  Mr. Whewell cautioned Ontario grain farmers that the United States was poised to grow 95 million plus acres of corn and demand might not be what they think it is.  He openly mused about $3.50 nu crop corn which is about half of what expectations were for some at the conference.  He drew a compelling argument and one we may be talking more about as the year goes on.

He answered for me a simple question on who will feed China?  The short answer is China.  Mr. Whewell made the statement that Chinese corn production is likely to rise with its own domestic demand.  So in other words, China might not need US corn as much as some people think they will.  It was a brave and honest statement of fact, and I will be watching to see how it plays out in the coming year.

One comment that I heard at the March Classic was that the meeting should be moved to a more central location.  I laughed at that because I would like it in Chatham Ontario, where it used to be located, at a time when most grain production was in Southwest Ontario.  Several people made the comment from Eastern Ontario, who implied the burgeoning grain production in Eastern Ontario toward the Québec border needed to be recognized. Whether that ever happens I don’t know.  However, it is very evident in Ontario farm country, that Eastern Ontario is a very dynamic place opening up for grain production.  It gets bigger and bigger every year.

The road ahead in 2012 will surely be topsy-turvy.  Expect a big splash on March 30th, which may throw water on the party.  We should also expect volatile weather, because that’s simply part of farming.  2012 may not be easy.  That “unexpected Tuesday” which I often talk about may even come along.  So if you are young farmer reading this column, I admire your optimism.  Keep in mind the business you are in.  At times, it’s not for the faint of heart.  There can be great rewards, but sometimes there are pitfalls.  Enjoy your youth.  Fight for your farms. Canadian agriculture needs you.

At the time, soybean breeding had changed the direction of the crop with more varieties being able to be grown in shorter season areas.  So now in 2012 there are soybeans grown north of Ottawa into Québec and of course in parts of Western Canada.  It’s kind of funny because when I talk to growers in some of these areas, they look at me strange when I talk about hoeing beans and cultivating beans.  That was my whole life until about 25 years old.

That seemed to all change with the ethanol revolution.  I have documented several times how corn has changed the game for many of us.  Not only is corn agronomic-ly superior to soybeans giving us more consistent higher yields, but revenues too.  So over the past few years the hype has being corn, corn, corn and soybeans have been taking 2nd fiddle because of that yield drag.

So along came 2012 with corn acreage predictions of 95.5 Million plus acres in the United States.  I’ve always had a bit of a problem with this because the new crop prices for corn were lower this year compared to 2011.  So why is there such a bigger projected production for corn acres in 2012?  That’s been partially answered because some analysts are expecting over 8 million more acres of crop in the United States in 2012 from the prevent plant acres of 2011.

Thinking about that it is a bit murky.  Who knows what’s going to happen with that flex acreage.  My feeling has always been that soybeans would need to fight for their own acreage.  That process seemed to be very slow up until the Christmas season.  I kept asking myself when it was going to happen.  Market action of the last couple months has answered that.  With South American production and soybeans being affected by drought as well as higher export sales of the United States, soybean prices have been on the march.  We are a good $3 higher for soybeans since Christmas.

This bodes well for soybean producers.  The harder part is always producing those soybeans at a yield level, which is reflective of 2012 technology.  For instance, when I speak on the markets across Ontario, I often tell my audience I have 40 bushel per acre written on my forehead.  I say this because boosting soybean yields is a very difficult process for me.  Part of the problem may be a short rotation of soybeans on land, which has grown them for 60 years.  It is the quintessential challenge of every farmer in southwestern Ontario to somehow find a way to get consistently high soybean yields.

So in the meantime, we enjoy much higher soybean prices.  We now have the nearby soybean contract at approximately $13.68.  What I find particularly impressive in the soybean complex now is what my colleague, John Sanow wrote about in his column this afternoon.  In his piece, John writes about how the July-to-November soybean futures spread remains at a strong inverse.  The November-to-January spread is working toward an inverse while the January-to-March and March-to-May spreads see their inverses strengthening. That’s about as impressive as I can remember the soybean complex being.  With South America losing production and the Chinese seemingly intent on increasing export sales, it’s almost shaping up as a perfect storm for beans.

So it is a good thing for soybeans that prices are higher.  However, it must be said that soybean prices have to be higher for them to remain relevant in many farm budgets.  For instance this year on my farm I am almost sure before I even planted a single seed that I have a much better chance of very high corn yield versus a high soybean yield.  For instance I had one of my highest soybean yields ever last year in 2011 and to repeat that is hard for me to imagine even as I’m set to challenge every farm management nerve ending I have.  So in lieu of that, I need higher soybean prices just to keep me even with corn.

Does that mean I’m dreaming about $20 soybeans?  Yes it does.  If you have read this column for over 25 years you will know that I’ve said that a few times.  However, the salient word is dreaming and not necessarily selling.  Let’s just say it doesn’t surprise me the soybeans have taken off.  They’ve been negated vs. corn for several years now.  They didn’t deserve it.  Maybe now, with production problems in South America and future spreads inverting, a perfect storm may lie ahead.

I have spoken about the grain markets at the London show for the last 6 or 7 years.  So maybe this year when I was not scheduled to speak there, I had much more time to look around.  I spent much of the day talking to chemical reps on how to fight Roundup Ready Giant Ragweed.  The rest of the time was spent learning more about automatic steering systems and visiting with friends.

I really like Lexion combines.  I get to review them in Country Guide magazine, and the London show did not disappoint with the new Lexion 750 on display.  As I stared at the big combine, a few of the guys gathered around and we started debating how much it costs.  The answer to that question is somewhere between $500,000 and $750,000.  Then the discussion went into land prices and how many of these combines we might need.  Oh, how times are changed even from 5 years ago when we were marching across Ontario at farm rallies asking for an agricultural safety net.  Adjusting to this new reality is still job one for me.

Much has been written about how the price of corn has changed the reality in farm country across the great North American Corn Belt.  For instance this is simplifying it a bit, but you could argue that corn and ethanol combined with increased demand from foreign countries has helped this process.  Of course, what happens now?  Will we be able to buy those Lexion combines next year?

The answer is yes, at least until 2014 because our friend Ben Bernake has promised us to keep interest rates low until then.  So if you have a little bit of equity, you’re off to the races.  The harder part might be where grain prices might go.  Our friends at the USDA will have much to say about that Friday when they release stocks and on March 30 when they give us our prospective plantings for 2012.

You can almost see a limit move coming on March 30th.  Since 2005 when the position limits were expanded at the Chicago Mercantile exchange, limit moves on report days have been more common.  The frenetic volatile reaction from the noncommercial trade to even little moves in the fundamentals often causes corn prices to react violently.  6 out of the last 6 years the January USDA report has had a limit move.  Surely, next January will be the same.  Why not March too?

Of course the world is a little bit different since the January report was released.  Early reports from twitter followers in South America said there was a drought problem in both Argentina and Brazil.  The South American prognosticators as well as USDA have been slow to report this.  For instance this morning CONAB came out with 68.75 MMT for Brazilian soybeans and 61.69 MMT for corn.  This has been a long way down since USDA projected 75MMT late last year.  The bottom line is South American production is down and the Friday USDA report should show some updated numbers on production and world stocks.

I have a hard time buying into the 94 to 98 million acre 2012 corn number.  Soybeans have fought hard over the last 6 weeks to get back some of that acreage.  Let’s just say this, especially in 2012; it’s a long road until the combines stop this fall.  There is a tremendous amount of risk that is being assumed in the projection numbers.  We are not Greece.  Let’s not count our chickens before they hatch, especially in the 2012 crop year where global demand just keeps rising.

There surely is a reckoning coming.  The difference between old crop and new crop fundamentals in all the grains needs to be rectified.  Time always brings this together.  There will be lots of gnashing of teeth on the way.  Keep in mind; nobody knows what price will do.  Bullish futures spreads don’t lie but even they don’t take away the daily violent volatility.  If you’re going to buy that Lexion, I have no problem.  However, the road ahead, especially in the next few weeks, may surely challenge your trigger finger.