Farmers' fingers crossed

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COLE BREILAND / WINNIPEG FREE PRESS Chris McCallister, who farms near Portage, fears the heat could still ruin chances for a bumper crop this year.

Up until this past week, things were looking great for Chris McCallister, a farmer north of Portage la Prairie.

"There is the potential for amazing," he said. "But it's way too hot now. The crops are burning up. We need a good rain in the next couple of days or we are in big trouble."

McCallister is not alone in being on the cusp of either a great crop or something much worse -- and Environment Canada is forecasting a 40 per cent chance of rain in Portage on Thursday -- but for many western Canadian farmers, the scenario couldn't be better.

An intense drought through the U.S. corn belt -- the worst since Ronald Reagan was president -- is driving corn prices sky-high.

The U.S. corn crop is the largest single crop in the world and as corn prices go, so go wheat, canola and soy prices.

"It's a pretty fantastic position to be in," said Brenda Tjaden Lepp, one of the founders of marketing advisory service FarmLink Marketing Solutions. "Between the U.S. crop conditions that are driving this rally and the crop conditions in the backyard of Canadian farmers... these guys (Canadian farmers) do not have a problem at this point. They get to enjoy benefits of U.S. farmer problems."

But with some prices getting near historic highs -- soy beans hit that mark earlier this week -- Tjaden Lepp and others wonder if there's already too much hype built in.

She is advising her clients to sell aggressively with wheat around $9 a bushel and canola at $13 to $14 a bushel. (Over the past few decades, wheat has often sold in the $5 range and the all-time high for canola was just under $17 in 2008.)

"Every season there is a weather rally like this and markets go screaming high," she said. "Usually when the crop is harvested and everything's added up, the problem is not as bad as during the growing season.

"But after a couple of years of devastating harvests because of excess moisture in the spring, Manitoba farmers are hoping for that rare combination of a bumper crop along with very high prices."

Reg Dyck, a farmer near Starbuck, said he's done some forward selling and is seriously considering doing more.

"I was wiped out two years in a row," he said. "We had a little shower on the weekend and as long as we don't have too many days at 35 degrees, we'll be alright. I'm cautiously optimistic."

Excessive heat stresses the crops and lessens yields, but most analysts say even though it is hotter in Manitoba than it is west of here, the crops started earlier and are already further along.

Bruce Burnett, director of weather and market analysis at the Canadian Wheat Board, said the heat and lack of moisture in some regions is causing canola flowers to burn off prematurely, which will hurt yields.

"That is a concern, but in the big Prairie scheme of things, it's not that big," he said.

Meanwhile, there is still no substantial rain in the forecast in the corn belt for this week and into next week.While he would not predict prices, such conditions could continue to place significant upward pressure on prices -- a good thing for Prairie farmers.

"And the impact will not just be this year," Burnett said. "It will probably also mean some reasonably buoyant prices next year as well because it will take some time for global supplies to recover from this drought."

Robert Winslow, an agriculture industry analyst with National Bank Financial, said agricultural commodity prices are back to 2011 levels and getting near the historic peaks of 2008.

He said there are a couple of ways the market sorts those things out.

"There is a supply response," he said. "Farmers in other parts of the world plant fence post to fence post."

For instance, he said the soy crop in Argentina and Brazil that goes into the ground in October and November is likely to be a large one.

Winslow said demand destruction also occurs.

"For instance, ethanol plants who buy corn as an input may not be seeing their fuel prices rising as fast as the corn inputs and some may be apt to shut down."

Wheat and barley farmers also have the uncertainty this year of selling their grain to someone other than the Canadian Wheat Board, a significant bit of uncertainty.

This week's crop report from Manitoba Agriculture, Food and Rural Initiatives is subdued in its concern about the heat, noting, "Generally the conditions of most crop types is rated as good. For some crop types, symptoms of heat and moisture stress are becoming evident. Precipitation would be welcome in many areas."

In the meantime, Winslow said, "Not to say prices won't go higher but the idea is to sell close to the top. We are close to the top. On balance, I would look at selling."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 11, 2012 B5