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Under the Agridome
Philip Shaw 4/16 2:45 PM

As surprises go, it was one of the more unusual ones. A farmer neighbour stopped over and told me there was a beaver dam at the back of a farm adjacent to me and I might have noticed more water in the ditch back there. I didn't think much about it until he left, then I noticed the catch basin in my yard was fuller than it should be. Maybe there is something to a beaver dam in a municipal drain.

The next day I trundled across the neighbour's wheat field about a kilometre away to take a look for myself. There it was -- the ditch almost completely blocked by sticks and mud. Of course, looking through my agricultural economic lens, all I could see were dollar signs, as my drainage tile were obviously turning into irrigation pipe. A phone call to the township office later, I found out the drainage superintendent had already had a trapper on the case. The point was made, if you take the beaver's dam out, they'd have it built back up the next day! So, the hunt is on!

Frankly, black swans were more on my mind than beaver dams. When I look at the grain markets, lurking in the background is always the event that comes along, which nobody expects, but could have severe consequences. COVID-19 was like that to some extent last year; back in 2003, bovine spongiform encephalopathy (BSE) in Canada is the classic one I always look at. It still holds true, black swans are very real and with regard to our grain markets, there are many waiting for that bearish black swan to come along.

Last week, we heard again from the USDA with its latest World Agricultural Supply and Demand (WASDE) report. The April report is usually a quiet event, especially coming after the March 31 report, which can be a showstopper. DTN Lead Analyst Todd Hultman laid the highlights out quite well in his closing post-USDA market commentary. There was a 4.4 million metric ton increase in world corn demand. The Brazil soybean crop was raised 2 mmt to 136 mmt. China's soybean demand estimate was trimmed 2 mmt. China's wheat demand estimate was increased 5 mmt. The 2020-21 world ending wheat stocks of 295.52 mmt are now below what they were a year ago.

It's amazing how Brazil just keeps producing more soybeans. That is a redeeming facet for soybean buyers in this world. Imagine if Brazil had a production problem this past year? You would have prices even higher than where they are now. Local cash prices for old crop in Ontario are pushing $18 a bushel. I can remember several years ago making a grains presentation and exclaiming to the audience that in future years, I'll likely be talking about more and more South American production. Here we are so many years later and that production just keeps growing. Needless to say, demand is keeping pace for the moment, but the USDA did detail a few hiccups.

In any case, we've still got that bullish market structure continuing. We had spot corn actually print a $6 value overnight, the highest since the summer of 2013. December corn, as I write this, is trading $5.12, where it hasn't been for more than six years. These prices have been helped by the spectre of not enough acres coming out of the March 31 report, but also the spectre of dry weather impeding the North American crop this year.

Dry weather concerns are not black swans or beaver dams. Simply put, there are tractors and planters in the fields now throughout southern United States and parts of the Midwest. It is also dry for Brazil's second-crop (safrinha) corn. Even your loyal scribe expects to push the GPS auto-steer button on corn planting late next week. Any type of weather-related concerns that even trim a bit off the top this year will add to bullish market structure. Yes, the bulls will have to get fed every day, but looking at our ending stocks, it's still a tall hill to climb.

I know, for myself, I'm hoping to climb it. Every year, farmers look at their own individual inelastic demand curve (when a change of price for a product does not significant affect demand for the product) and produce as much as we can. The unwanted black swan we don't want is Chinese demand drying up. Chinese demand has switched to Brazil for now. I had one Ontario grain merchandizer tell me that his day is twice as busy when the Chinese are buying. He cautioned me that there is Chinese information which is more reliable. For instance, crush demand from China from firms with boots on the ground. However, he really understands actual vessels which have been filled with grain and have left for China. Simply put, we need his days to get busier again.

Hopefully that will happen. As I've said many times, the view from Asia looks very different, like it did last year. In retrospect, China needed agricultural commodities, but in the fog of COVID, many of us in the west couldn't see. We were relying on what we had seen before, which was the same old thing. What we got was unprecedented demand.

So, what is it this year? The fog of COVID-19 is still here in spades. Will that Chinese demand be as robust later this year as last? Will our Ontario grain merchandizer's days be twice as busy as they are now? Or will there be some type of black swan come along, or even more on point, how about a beaver dam on those grain pipelines?

Well, I know something about beaver dams. Those little rascals got me over a barrel. As farmers, it's go time. Produce as much as you can and price into profitability. There will be black swans and even beaver dams ahead. It might even involve China. We shall see. I'm going to win my battle with the little beavers. However, it will surely be eventful. Ditto for our grain marketing opportunities.

Philip Shaw can be reached at philip@philipshaw.ca

Follow him on Twitter @Agridome

 
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