The past few years have seen buoyant prices for agricultural commodities. Whether you grow corn and soybeans in southwestern Ontario, or wheat and canola in western Canada, prices have comfortably exceeded historical levels. Agriculture is full of challenges, but farm life always seems easier when prices are high. As we move into 2012, the great test for markets will be to see if that buoyancy lasts. It’s a new world out there and our markets are adjusting.
For Canadian grain growers there are myriad new issues on the horizon this year. Of course in western Canada, “marketing freedom” represents a whole new world of marketing wheat and barley. At this early juncture there surely will be hiccups along the way, but producers will likely adjust to new marketing realities.
Markets are one thing. Mother Nature is another, and she will surely challenge farmers no matter where they live. So will global economic uncertainty.
Key to market prices in 2012 will be non-commercial speculative demand, which exited many agricultural commodity markets in the last third of 2011. Outside markets are increasingly impacting the grain market. Sovereign debt concerns in Europe grew constantly in 2011. This caused much non-commercial speculative capital to leave Europe, looking for safe havens — mainly U.S. government securities. This raised the value of the U.S. dollar, the world’s default currency. As this currency goes up in value, it has a negative impact on world agricultural commodity prices. This vicious circle continues as we look into 2012.
Non-commercial speculative demand is always important in Canadian grain markets, and in 2012 many Canadian farmers will be looking for its return. But grain fundamentals, the laws of supply and demand, still count as major factors in determining agricultural price movement. United States Department of Agriculture (USDA) and Statistics Canada reports are typically very important in determining the grain balance sheet for both market traders and farmers.
The January 12 USDA report pegged 2011 U.S. corn production to be 12.358 billion bushels, up from the December report of 12.310 billion bushels. This increase in production, as well as an increase in quarterly stocks, sent corn markets down to the limit, $0.40/bushel on January 12. USDA also increased soybean yield for 2011, pegging production at 3.056 billion bushels from the December report of 3.046 billion bushels. And world ending stocks for wheat were put at 210.02 million tonnes, just a whisker below all-time record levels. Overall, the January 12 USDA report put a bearish tone onto the 2012 year.
Canola, not immune from the USDA report, followed soybeans down. Canola prices will depend heavily on the South American growing season for soybeans, going forward in 2012. Canola supplies are tighter than soybeans, however, and command a premium. Specialty canola oils are also providing support for the canola complex.
Weather will continue to be the quintessential wildcard in 2012. Whether it’s drought on prairie canola fields in July, or a timely rain on Argentinean soybeans as crops there move toward maturity, weather concerns will dominate the production season. Prices will bounce around largely based on how non-commercial speculators view the weather patterns.
So, will it be more of the same in 2012? No — if there is one constant in Canadian agriculture it’s change. As you market your crops in 2012, expect change. And the challenge will be to manage that change.