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Editorial: Mission improbable

It’s that time of year when all the hoping and wishing — or fear and loathing, depending on the year — gets put to the test.

In a lot of grain-growing regions around the world this summer, our own included, most farmers probably weren’t predicting a bountiful harvest.

From Europe to the U.S., Australia to Argentina, and here at home on the Prairies, farmers were facing drought.

It set the stage for a production shortfall and weather rally.

Late this summer the markets delivered, with a nice spike in wheat prices being particularly noticeable.

In just a few weeks, however, things have changed. Key production regions in Australia saw rain in late August, even though farmers say it will take more moisture to truly break the drought.

One report sees the key grain-producing state of Western Australia poised for a near-record crop now.

In Latin America, farmers also appear to be bucking the odds, with a big grain crop on the horizon if they get any rain.

Closer to home U.S. farmers are reporting surprisingly high yields, as are farmers throughout much of the Canadian Prairies.

These anecdotal reports were already starting to give grain markets a bit of indigestion by late summer, especially amongst fund investors, who began liquidating.

Reuters wire service analyst Karen Braun recently noted the activity “… goes against global grain balance sheet projections, which show a tightening of supplies to multi-year lows across major exporting countries.”

Despite those projections, funds were already sidling towards the exits in the week ending Sept. 7, Braun said, with some funds extending their short positions in corn, making a bet prices would move downward as harvest progressed.

It didn’t take long for their bearishness to be rewarded, when the U.S. Department of Agriculture released its monthly supply-and-demand report Sept. 12. That document saw larger-than-expected U.S. corn and soybean yields and an unexpected jump in global wheat production.

The report prompted a further orgy of selling on the Chicago Board of Trade, including a single-day contract sales number of 47,000 the day the report dropped, a figure that hadn’t been seen since spring 2016, Reuters reported.

All in all, it paints a picture that will be familiar to many farmers who lived through the long sideways grind of grain markets in the 1980s and 1990s.

During those painful years farmers regularly found themselves wondering just what it would take to move markets upwards. The market would receive and digest one paltry production or ending stocks forecast after another and the needle would scarcely move.

This dynamic manages to emerge for a few reasons. First there’s the increasing availability of information. As one market analyst of our acquaintance has noted more than once, it used to be you’d find out it rained in Ukraine a few days, or even weeks, after the event.

Today that information is available with a few keystrokes, anywhere in the world. In fact as this editorial was being written Google informed us — in 0.55 seconds, the service proudly noted — Kiev was 18° C, with an 11 km/h wind, 48 per cent relative humidity and zero precipitation.

In the 1990s that dynamic was only beginning to emerge, limited mainly to subscription services. Now it’s in full force, available to all, serving to dampen the effect of weather on markets at times.

There’s also the question of just how durable yields prove to be in the face of what seem like impossible odds.

Even last season most were pointing to good subsoil moisture as the only reason a good crop came off throughout Western Canada. This year, despite depleted reserves and scant rainfall, a decent crop is shaping up as our Alexis Stockford reports in our Sept. 20 issue, especially in the cereals.

There are no doubt a host of reasons for this durability: better crop management, better genetics, the ability of many crops to send roots deep to scavenge scarce moisture among them.

It would seem that grain producers are once again returning to a familiar paradigm. They’ll contain costs, look for pricing opportunities during short-lived rallies and try to get through to better times.

As that same market analyst observed, during hard times it’s back to the grinding ground game where you win inch by inch, and sale by sale.

Now is also the time where innovative farmers will identify and adopt new strategies and technologies that further these goals.

In the 1990s it was the adoption of zero and minimum tillage for the economic advantages that won the day.

In the future it could be practical applications of precision agriculture that cap costs and drive profitability, to cite just one example.

In the end disciplined marketing and cost-effective production will win.

About the author

Editor

Gord Gilmour is Editor of the Manitoba Co-operator.

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