Under the Agridome

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The crop is moving along in my part of southwestern Ontario. Combines had just gotten rolling when rain game putting a stop to progress here. In fact, there are some areas of southwestern Ontario that got catastrophic rains. It's that time of year when fall harvest starts up and there are always myriad concerns. Hopefully, the weather will be kind this October. Of course, what also helps is a good attitude.

I say that because I ran into a farmer colleague last week who told me he had just finished reading my column. He told me that after reading it he got more depressed. He wasn't disparaging me, it was more like just commenting on some of the subject matter of the day.

Unfortunately, the vagaries of our agricultural economics sometimes don't offer the best opportunity. I get to decipher that for you on a weekly basis. However, I took the comment well. I thought I would try to offer some optimism, because despite how difficult our agricultural economics can get, there are some rays of sunshine if you look really hard.

As of Sept. 25, November soybeans are sitting at $10.12 a bushel and December corn is sitting at $4.25 a bushel. That price for corn is in the 14th percentile in the past five-year price distribution range. For soybeans that puts us in the 10th percentile of the past five-year price distribution range. In other words, there is a lot of blue sky above these prices but, of course, most of it has been in the past. In other words, we are on the low end of a dip which has lasted during the last couple of years. It might make some of you depressed like my farmer colleague, but there are reasons for optimism. It's always darkest before the dawn.

And that dawn will come. I am as sure of that as I am the sun coming up tomorrow morning. I've seen a lot in my almost 39 years of writing this column and better prices are on their way; it's just a matter of when. We can "risk management' ourselves to death in this big game of profitability, but at some point, we will find ourselves in a very improved market. It will be brought on by who knows what. It will happen; it just hasn't happened yet.

Take corn for example. Yes, a $4.25 December futures price doesn't have anybody excited, but you do realize it was a lot lower last year. You also know that I analyze these markets not only here at DTN but also the Grain Farmers of Ontario and others. The one thing that fascinates me about the corn market is its resilience. As we all know, the USDA report this past month put U.S. corn production at 16.814 billion bushels (bb). This was based on a 186.7 bushel per acre (bpa) yield on 98.7 million planted acres. That's amazing production when you consider that we "only" produced 14.867 bb last year. Further to that, corn demand is an absolutely astounding record high of 16.06 bb this year.

I understand that many of you might relate this all to huge supplies which is depressing our prices. I get that. However, keep in mind that demand number of 16.06 bb. It is surely a reflection of how cheap corn has gotten, but that itself is unsustainable. In other words, it is unlikely that we will keep up our corn supply in the near future to meet that demand. At a certain point, we all have a production hiccup which will be met by a big demand of 16-billion-plus bushels that cannot be satisfied. At that point, price will have to move up to ration that demand in a very big way.

In other words, this grain market is going to turn bullish with much higher prices. I believe that like I believe the sun will come up in the east, but of course the challenge is to know when. That's why the game is long and, in this world, where self-gratification has to be immediate, patience in our agricultural economic world goes a long way.

Are there choices to be made? You bet. As you all know, I often write about our own personal risk management and how we need to hone those skills on our own farms. The drive to become even more efficient is insatiable, but it's also necessary. Remember, your grandfather might have got $4.25 for corn as well but he stored it in corrals made with snow fence with rats feasting below. Simply put, the drive to make 300 bushels per acre continues and we will get there. Taking advantage of new technology and making ourselves even more efficient will help us with these prices.

It means that the vicious cycle of agricultural productivity will continue. It also means that there will be opportunity amid the ups and downs of that cycle. Sometimes it will be completely unexpected and sometimes not. However, at the end of the day if you are part of the farming game, you will have your winning times. So don't be depressed, block that out, it's time to look up. The best of times aren't just around the corner -- they're on the horizon, and as sure as the sun comes up in the east, they'll be here again.

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The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

Philip Shaw can be reached at philip@philipshaw.ca

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