Waiting for other shoe to drop as issues simmer

It’s a bit like suspended animation. We’re at one of those rare times when a bunch of grain-related issues are simmering, but nothing is at the boiling point.

The grain transportation crisis, while still in the news, has eased since the 2013-14 crop year. Movement has improved somewhat to bring us back to the mediocre service we’ve come to expect. The Canada Transportation Act is under review, but that isn’t going to be completed until the end of the year, and any action is much further away.

Grain prices are down substantially from their highs of a few years ago, but prices aren’t terrible. Profitable cropping options exist for the upcoming growing season, and there has been ample opportunity to lock in some of those attractive prices.

Where prices go from here seems to be anyone’s guess. Different analysts have different interpretations.

For most of the past decade, there has been a strong correlation between grain prices and crude oil values.

However, over the past six months, grain hasn’t followed the dramatic decline inflicted upon crude oil. The two now seem decoupled.

The drop in oil has cut the value of the Canadian dollar. That’s a benefit for agricultural exports, while imported inputs cost more.

Fertilizer prices are high, partly as a result of currency, but values are not exploding. No imminent shortages are apparent for any of the major crop inputs.

Unlike many recent springs, flooding isn’t a widespread issue. In fact, many prairie regions have had well below normal winter precipitation.

Dryness could become a concern in some areas, but we aren’t at that point yet. At this juncture, spring seeding would appear to be on track for a normal start.

With commodity prices backing off, the upward pressure on land prices appears to have eased a bit. Reports out of the United States indicate dropping land values in the corn belt, but there is little evidence of that here. We’ll have a better idea of what happened with 2014 land values in Canada when Farm Credit Canada releases its next evaluation.

There’s no news yet on CWB privatization. CWB continues to build the new facilities it has announced, but its future partner is still unknown. When that deal becomes public, there will be no shortage of commentary and probably controversy.

The world economy appears fragile, and there’s the ever-present geopolitical risk from the Middle East and Russia. Those could certainly affect agriculture.

Federal and provincial elections are approaching, but agriculture seems destined to be an afterthought in the campaigning. Changes in government would mean changes in ag policy, but those sorts of debates are not imminent.

Will this be the year when some areas go from too much moisture to not enough? Will grain prices slip another couple notches and tighten up the farm economy? Will some black swan event such as a trade embargo emerge? Will disease issues in canola and/or pulse crops reach even more troublesome proportions?

The cattle sector continues to set new price records. Profitability for cow-calf producers has never been better, and the good times are likely to persist for the foreseeable future. Within the grain sector, it’s not normal for things to be so normal, so uneventful.

This relative calm is unlikely to last. Typically, the grain sector has an overriding issue or two with wide-ranging ramifications, and we can expect that to be the case again sooner rather than later.

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