Gen. Douglas MacArthur, who commanded the U.S. forces in the Pacific Rim during the Second World War, once famously said, “It’s better to be lucky than it is to be good.” Ontario’s grain producers get to own a bit of that logic as they watch commodity markets unfold this spring.
The “lucky” part is that since early February, the weather situation in much of South America’s soybean producing region has been less than ideal. Northern Brazil has been wet, and central and southern Argentina has been very dry. The Argentine drought is having a negative impact on soybean yields, and the wet conditions in Brazil, while coming too late in the year to hurt yield, has delayed soybean harvest which in turn slows down the planting of double-cropped corn. Certainly no person can plan or orchestrate a weather problem, so the positive impact on grain prices is purely good fortune.
For most of the past year, the global supply of soybeans has looked burdensome. 2017 saw a huge South American harvest in the spring, followed by a record North American harvest in the fall and equally large South American plantings for the 2018 crop year. In order for the market to bounce, somebody needed to have a weather problem and weather problems in Brazil and Argentina are a lot better for Ontario farmers than weather problems between Lake St. Clair and the Ottawa River.
In terms of adjusting your farm’s marketing plan to take advantage of the slightly-reduced South American production, it’s important to understand that most of the upward price action in soybean futures has been concentrated in the nearby months. March ’18, and May ’18 Chicago soybean futures have gone up faster than the new crop contracts for November ’18 and January ’19. This has occurred because a reduced South American crop has the greatest impact on the world’s supplies during our spring and summer. There’s nothing about the Brazilian flooding, or Argentinian drought that would have any impact on North America’s 2018 crop. (In fact, in the worst case scenario, higher prices for North American farmers now might actually create an increase in our soybean planting acres in the spring.) That’s what makes the current situation an important opportunity to sell new crop. It’s the one soybean crop that might not actually be short.
A reduction in the South American soybean supply this spring creates a significant opportunity for Ontario and other North American exporters to move out more of last year’s crop this coming spring. Up to this point in the 2017 crop marketing year, the USDA has reported that the export pace of American soybeans has been far behind the projections made earlier in the crop year, to the point that in recent supply and demand estimates, the USDA reduced their expected soybean exports. If the South American supply is to be limited, then there is reason to believe that North American exports could actually start to move back up, and as that occurs it will push prices higher, or the very least limit the downside slip by removing surplus soybean inventory from the marketplace.
Canadian soybean producers have experienced a lot of good because of the weather conditions which developed in Brazil and Argentina in February, 2018. The trick now is to figure out how much upside movement we might see in prices as a result of these drought and flooding events. The price trajectory isn’t unlimited, and commodity markets are known to overreact and then retrace at least part of the move, so farmers need to view this situation as a fortunate turn of events, and use the opportunity to add some incremental sales to the marketing plan.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.
