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.