The Essex growers had invited a friend of mine, Jim Boak to speak about how to recondition fields, which were rutted from wet conditions this past fall.  It’s a huge issue in many parts of the province.  Getting those fields into a position for good crops in 2012 will surely be a challenge.

I spoke on the grain markets and what I saw as keys to future price direction.  It was an interesting time because only 2 days later something changed in the grain markets, which I think will surely affect them for at least the next 2 years.  When Ben Bernanke, chairman of the US Federal Reserve said Tuesday that they would keep interest rates low until 2014, commodity markets spiked.  With an open playing field for the next 2 years, low interest rates are good for the grains.

It is what it is.  Western economies are so weak that Federal Reserve banks have kept interest rates low trying to spur economic growth over the last several years.  It’s working and it’s not working.  The economy in the United States is showing signs of life but it is obvious that the US Federal Reserve wants to keep interest rates low to make sure there is capital to keep it going.  With Europe still the slowest moving train wreck; there is a need for more fiscal stimulus in the form of cheap credit.

When I heard this news it was entirely obvious to me that it was good for agricultural commodities.  In my mind it was also very good for Canadian agriculture.  For instance if you want to buy a tractor or combine or any type of farm machinery, if you have any equity at all you can get credit to buy it.  This credit is cheap, especially when somebody like me has a memory up paying over 20% interest rates and paying off farms at 12 and 13%.  With the road clear until 2014, it’s a huge stimulus for agriculture across North America.

In many ways the Canadian agricultural economy is sheltered against what’s been going on in the nonfarm economy.  The last few years have been good years.  Compare that to the Caterpillar plant in London Ontario where workers have been locked out after being offered a contract for wages almost half what they had previously worked for.  Sure, we have the same things happen to us with farm prices sometimes, but the last few years have been good.

That does not take away the impact to Canadian agriculture that is been felt from the economic impact of the slowdown in Europe, which has washed up on Canadian shores.  For instance last week Bank of Canada governor Mark Carney stated that the slowdown in Europe has cost Canada $10 billion in economic growth.  When I heard that figure, I was struck by how huge it was.  A large part of that has caused lower prices over the last few months in the grain market.

Low interest rates have been the bane of Gov. Mark Carney.  I’m sure he was pulling his hair out last week when the Bank of Montréal announced that they have a new five-year home mortgage rate for under 3%.  I say this because he’s been trying to get Canadians to spend less and reduce their debt levels.  He might even think that about farmers, as it was brought home to me last week about the skyrocketing farmland prices in southern Ontario.  One farmer told me he had lost 300 acres of rented which was sold underneath him for approximately $11,000 an acre.  With interest rates staying low, it makes that so much easier.

So from the grain bin to the real estate desks and beyond the announcement by Ben Bernanke this past week about keeping those rates low until 2014 will surely reverberate into the future.  It’s going to be the same here in Canada.  It’s hard not to be bullish agriculture.  Those 23 1/4% interest rates seem so science fiction now.

I have been talking about the grain markets over the last couple of weeks and have about 5 more speaking engagements within the next 2 weeks.  It will be interesting to see if the trend continues.  I have had several people come up to me and ask about farm real estate prices, interest rates and the lofty expectations of farmers under the age of 40.  I have found myself left to be looking into the crystal ball a little more than usual.

It is been a long journey reaching the ripe age of 53.  Of course your loyal scribe was 26 when I 1st penned this column.  Back in those days there was no ethanol demand, in fact demand was almost half of what it is today in the corn market.  The world was awash in supply and we were on the continuing cycle of trying to ride out the hills and valleys.  We were just coming off some of the highest interest rates in history. The 1st farm demand loan I ever had was at 23 1/4%.

When I say that during my speaking engagements it touches a nerve.  For instance I’ve had several people come up and tell me they paid the same interest rates, almost like it is a badge of honor.  The conversation soon turns into some of this $10,000/acre farmland, which is being traded in places like North Oxford County Ontario.  Many cash crop producers in that part of the world are losing their rental acres to dairy producers looking to put their cash into a tangible asset.  Add the super low interest rates into the mix and you get a combustible agricultural economy, which is buoyant beyond what we could’ve ever imagined.

For some of us I think it is difficult to adjust to.  I count myself in that group.  For instance I have led farm rallies on Parliament Hill as well as throughout Ontario farm country.  During those times we were faced with prices that were less than the cost of production.  We faced an uncertain future relying on a flawed government policy, which is even more flawed today.  So 6 years later, this new farming environment, in many ways seems surreal.

It was brought home to me again today when I was asked to speak next week at a producer meeting east of London Ontario.  Usually I am asked to speak about the grain markets or some type of economic happening.  This time I was asked to speak about why we are paying so much for land rental?

I was also questioned recently about the younger people in Ontario farm country. Specifically I was questioned about all the younger farmers at a recent planter clinic.  These guys were buying new planters with all the bells and whistles, guidance systems, etc.  There seemed to be no end to the optimism.  Meanwhile land was trading in the neighborhood at $11,000 an acre.

Phil, what do you think about this?  That’s the question I get.  Of course, I think, who the heck am I to answer it.  Then I started thinking that if interest rates go way up, it’ll be a disaster.  I could go on and on.

Despite those thoughts, sometimes I think I am all wrong.  Sometimes I feel that I am a captive of agricultural economic times in the rearview mirror.  Realizing that, maybe I should embrace these new agricultural economic realities without the memories of hard times in the past.  Or does history tell us, that we are doomed to repeat the failures of the past?

I find it a hard call.  For instance the old question I used to get about corn was whether to would get to $4.  The new question I get about corn is whether it will get to $7.  The interest rates I used to pay on the farm were double-digit plus, last week the Bank of Montréal made 5-year house mortgages available for less than 3%.  One farm property appraiser recently told me that he has never seen anything quite like it, with regard to farm sales.  The last time he saw it this way was in the late 1970s when land prices were exploding and agricultural optimism was everywhere.

We all know what happened then.  Interest rates exploded upward and the agricultural economic damage was tremendous.  Agricultural bankruptcies and farm failures were everywhere.

But for now in 2012 is it that time again?  Are some of us captives of agricultural economic times past?  Or should we be asking the question will these optimistic agricultural times last and get even better?  Are we on the cusp of something much bigger and better?  Do all those young people in agriculture, brimming with confidence have the right idea?

I dunno.  I hope all those young people have the right ideas.  I don’t want to be a naysayer.  As this winter of 2012 moves on, I’m sure I’ll hear a lot more of what farmers are truly thinking about.  It’s almost stealth like, but it’s happening.  Considering it has got me thinking overtime.

Of course timing is everything.  I was glad to go to Lindsay to talk about the grains and but it was pretty obvious to me the market would have a lot much more to say the next day on January 12th.  USDA was set to release its annual January report, which always has fireworks.  Like the thunder before the lightning and the breath before the 1st kiss that was what it was like that day.  I tried to warn the respective people who came out of the impending impact of USDA numbers, which we received this morning.  It was like wait for tomorrow, something big is going to happen.

The January report did not disappoint in terms of impact.  The last 5 years have seen limit moves from the January USDA in corn.  So when the 1st inklings of the report came across my Twitter feed, with corn at 147.2 bushels per acre, I knew it was bearish.  Then I heard that ending stocks and quarterly stocks had increased.  That told me we were in for a limit down day on corn and that is exactly where we ended up.  Hold me to this one.  Next January 2013 USDA report, we’ll see another limit move.

When the market opened, corn was down 39, and then hit 40; soybeans were down 50 but rebounded to finish down 21.  In many ways, it was a reaction to the hype, with non-commercials headed for the exits, following the headlines.  The market was leaning hard on old crop corn and when USDA came up with half a bushel more per acre it didn’t take much to send prices lower.  Soybeans followed corn and had their yield boosted too.  However, there’s been such dry weather in Brazil and Argentina lately, losses were mitigated throughout the day.  Wheat got hammered but at this point, what else is new.  There is blood on the floor everywhere.

We had a $.40 drop in corn but the stocks to use ratio did not change from yesterday, still at 6.7%.  How does that happen?  If there ever was poster for noncommercial demand, this is it.  Our speculator friends are skittish on grains, especially at a time when the fundamentals aren’t quite adding up.  We have the lowest stocks to use ratio since 1996 and we have limit down.  Go figure.

If there had been a $.50 limit on corn, something tells me we would’ve hit it.  This is market volatility defined.  As we move ahead, markets will probably tread water until South American weather tells us different.  In the distance the March 30th prospective plantings report looms in stature to what we have just seen.

If corn stocks are tight then soybean stocks are comfortable at 9.1%.  Wheat on the other hand, has stocks to use ratio of 41.2% with world production almost the highest ever.  So as we move ahead, corn will lead the way, unless South America changes everything.

In Ontario, I saw a few cornfields still out ready to harvest on my travels to Lindsay East of Toronto.  One of my colleagues from Essex County finished harvesting corn this past week, so I presumed that many of these cornfields I saw were out by choice.  However, I was told that wasn’t the case as many of these fields were heavy clay and farmers were still waiting for cold weather to put equipment on them.

Basis levels for corn in Ontario are still weighted under the pressure of the good 2011 harvest.  Ontario average yield is said to be about 160 bushels per acre, incredible after the late start we had last spring.  Eastern Ontario basis levels are more buoyant because Québec had a very poor crop and much Ontario corn is being shipped there.  As we move toward spring I expect corn basis levels to change to import pricing.

Needless to say, there was some disappointment in Canadian farm country this morning based on the USDA results.  Yesterday in Lindsay I was asked to comment on how the USDA measures yield.  I responded by saying they had changed their methodology but I was not very familiar with what that was.  I went on to say that it really didn’t matter, as the USDA sets the goalposts on crop production, ending stocks and usage.  So you have to trade something and these are the numbers that we have.  In other words, that’s it.

Is hope on the way?  Or what about those $8 corn calls from last summer?  Oh, sober 2nd thought.  Retrospect has such 2020 vision.

So where do we stand as we look into 2012 with regard to the grain markets.  Is the vision of $7 corn still dancing in your heads from this past summer?  Do you think the corn soybean ratio is out of whack favouring corn?  Will the noncommercial’s come back into the market pumping up the demand for grains?  What will our respective currencies act like?  Will the US greenback continue to rise, the proverbial safe haven for everybody’s money?  What will come along on some unexpected Tuesday to throw a wrench in all our grain marketing plans?

Looking into January, we’ll surely have to get by next week’s USDA report on final production.  That report in the past has been a bombshell for farmers with limit moves common.  In fact, the January report is often more criticized by US producers than any other month in USDA’s schedule.  It’s that way, because the January USDA sets the table for the rest of the year.  The final production numbers will affect ending stocks going forward, any surprise will certainly affect price action short term.  You can bet our speculator friends will be watching.

Flying under the radar this January is the value of the US dollar.  The US dollar index is the measure I use to calibrate opinion versus commodity prices.  On October 27th of 2011 the USDX was at 75.386, while today it was at 81.245, a huge jump, telling from the standpoint as a safe haven.  Despite the machinations of European political leaders the US dollar is still seen as a safe haven.  Noncommercial capital is flooding into US securities and the value of the US dollar goes up because of that.  Grains become more expensive, negating fundamentals, negating noncommercial demand.

To me this is one of the biggest factors for the grain markets as we move through 2012.  With all things equal, benign weather through the upcoming growing season and a low US greenback means good prices.  However, if the US greenback continues to climb, and there are those out there predicting that, grain prices will retreat. That’s how important the value of the US Greenback is to North American farmers.

The Americans are seeing the greenback jump at the same time as their Federal Reserve is printing money.  Printing money usually adds up to inflation.  The difference however with out American friends, is that they are printing the world’s “default currency”.  With it’s value going up, they are getting the best of both worlds, increasing their purchasing power, and stimulating their economy at the same time.  With the rest of the world measuring against the US greenback, the US will benefit.

Into this fiscal environment the grains must trade.  With the US greenback feeling its “oats”, it almost like market bulls have a hand tied behind their back.  Add the European slow moving train wreck into the equation and some other outlier event not yet named and grains will surely be in for a volatile year.

It’s that “outlier” event which always piques my imagination.  For instance, who saw Libya coming a year ago?  This year will it be the Straits of Hormuz, with Iranian rockets buzzing overhead slamming shut 40% of the world’s oil supply?  All of this or none of it will surely weigh on the grains in 2012.

It all leans on the bearish side, despite the fundamentals which tells me the world is demanding more corn and so far is willing to pay for it.  World demand for corn is projected at 868.61 MMT for 2011-12 and will grow another 20 MMT in 2012-13.  This means the US will have to grow nearly 95 million acres of corn at 160 bushels per acre to begin to rebuild world ending stock.  I can’t see that happening without major price moves in all three grains.

So the bearish outside markets, including the currencies will be fighting the grain fundamentals in 2012.  Who’ll win?  Something tells me it will depend on the day.  And on those days, you market your crop.  2012 will continue the volatile trend.  Fasten your seats belts, after 2011, its not like you aren’t used to it.

From my vantage point in southwestern Ontario farm country there were two things this year aside from the weather, which really changed shook our agricultural lexicon.  One was the elimination of monopoly pricing power for the western based Canadian Wheat Board and two, the quick exit from the grain markets of the noncommercial speculative funds post August causing widespread drops in prices into Christmas.  There were many other events related to this, but those two hold the most 2011 water for me.  In 2012, we’re still watching to see how things turn out.

The seminal moment in the emasculation of the Canadian Wheat Board in 2011 came on May 2nd.  That was the day when Stephen Harper finally got his majority in the Canadian Parliament.  With the political way finally clear to get rid of the board’s monopoly power, it was only a matter of time before it was done.  Just before Christmas, legislation was passed to get that done and that collective sigh heard over Western Canada were CWB opponents expressing relief.  It’s been a long time for those folks to wait for the demise of the CWB and they are finally getting it.  The political opposition to it among the Liberals, Bloc and NDP never made a lot of sense, so with Harper elected, it was a fait accompli.

Opinions about the CWB are visceral in Western Canada.  Invariably, I was asked my opinion several times and I gave my standard answer, “that it was a western issue and not a concern of mine.”  Needless to say as the legislation got farther down the path of reality, it turned into a real western gun slinging, name-calling, fist fight, as opponents and supporters of the CWB went at it.  Minister Gerry Ritz seemed to revel in his victory.  It meant nothing in the East, and he’d better lose his swagger when he comes this way.  However, with the dust settling over the issue in Western Canada, marketing freedom is here.  I just hope my western readers realize that marketing freedom equates with marketing responsibility.  That’s what it all about in Ontario.

Interestingly enough, my western friends will surely be hoping for the return of noncommercial speculative interests to pour their billions back into agricultural commodities in 2012.  The exit of these spec funds from the grains since August 2011 was a major seismic event in 2011 prices.  When the European debt contagion grew larger with no apparent out, large speculators put their money into US securities causing a rise in the value of the US dollar.  The exit from grains into US government securities was like pouring gas onto the bonfire.  One fed the other pushing down agricultural commodities prices.  As we get to the last few days of 2011, there has been a bit of reversal of trend.  Everybody in Eastern Canada are sure hoping it continues.  The new “speculators in the grains” are friends to the farmer.  Add a little bit of marketing responsibility into the mix and over the last few years, its been adding up to increased profitability.

So as we march into 2012, it’s ditto for western Canada.  Sure, we can look at grain fundamentals, but now that the CWB is gone, its more “our responsibility” to measure in our own mind the strength of noncommercial specs in the market.  They are key and the faster everybody realizes it, the better.

A third factor in 2011, which was big, had to do with a less than perfect American growing season.  In the next couple weeks we’ll find out from the USDA just how much corn, soybeans and wheat came out of those actual harvest fields in 2011.  However, in the meantime, we know the hot and dry in much of the US Corn Belt in July and August reduced corn yields substantially from projections last January.  That realization started to take place in June, July and most of August of this past year.  It made for the volatile situation in grains that much more acute.  Nobody likes a bad crop.  Unfortunately, part of the big run in prices last year, fell squarely on the backs of some unfortunate American farmers.  I don’t know if that’s going to happen again.

So what’s in store for us in 2012?  Oh, the quintessential question.  We know we need more corn and we might even need more soybeans if South American weather continues to be fickle.  Of course the question is what else will we need?  I’m sure rain will still make grain in 2012.  I don’t know if the large speculative interests will be back.  A pricing environment with a buoyant US dollar might spoil that.  However, who knows.  2011 challenged us all.  2012 will probably be no different.