By Simon Crouch
CHATHAM — The great commodity super cycle that has been the worldwide story in the grain market for a number of years is over, but the message hasn’t reached everyone.
“The boom is over,” said Blenheim-based managing director for Cefetra, Bruce Trotter, noting the United States Department of Agriculture projected return on corn and soybeans is negative.
Trotter and The Andersons senior risk manager Mike Mock noted while prices on the Chicago Board of Trade are low, they haven’t translated into negative returns in much of the world because of currency fluctuations. They spoke on separate days at the two-day Chatham-Kent Farm Show with remarkably similar narratives. They listened closely to each other’s presentations and suggested farmers lock in some of that advantage.
While Chicago prices are lower than a year ago, returns for Ontario corn, wheat, and soybean growers are higher because the Canadian dollar is much lower.
“The basis value the Canadian farmer is getting is outstanding. It provides room for profitability,” Mock said. “We view it as a gift and it needs to be taken advantage of.”
Neither analyst is predicting a rapid change in the supply side of the story. That’s because the high American dollar has preserved profitability to farmers in many parts of the world. Not only are Canadian farmers being paid more than a year ago, but Russian, Argentinian and Brazilian farmers, as well as farmers in other countries, have also seen their crop earnings, climb in their local currencies.
“They have no reason to ration production,” Trotter said. They both suggested American planting intentions don’t show a cut in production either.
“The U.S. farmer knows he is feeling the pain, but he assumes everyone is, and they are not,” Mock said. “U.S. farmers still feel they can grow their way out of it.”
Mock said his surveys of American Corn Belt farmers indicate a lot of the grain in bins has not been hedged, meaning prices could fall more moving forward.
“Sixty per cent of the ‘15 crop is un-merchandised,” he said. “Only 5 per cent of the ‘16 crop is covered. The U.S. farmer is going all in.”
“If the weather is good, it is going to get nasty,” Mock said.
Mock and Trotter both suggested there won’t be much help from ethanol demand because with low crude prices, there is no cost saving to refiners to blend more than mandated amounts.
He added Ontario farmers have been good about locking in sales for the 2015 crop but said it is time to consider how long the profitability will remain.
“The question is how much do you want to do with the 2016 crop and even 2017?” he said. “What we are suggesting to the grower is, if you’ve got some profitability it would be a good idea to lock some of that in.”
Some things that could result in higher prices include a rapid switch from the current El Nino to an early La Nina, resulting in poor weather in a number of countries, hedge funds needing to rapidly cover short positions, and a vegetable oil shortage that may give soybeans an advantage over corn.
“Most of the things I’m talking about today make me want to grow beans,” Trotter said.
