What's Happening with Your Acres?

[Bruce14]

I'm rather surprised, that at this time of year, this corner is as quiet as it is. I expect people are shell shocked by the drop in prices. Is this going to lead to more wheat acres? What are you hearing at the seed cleaning plants? Did you know the CWB has come out with new crop PROs? #1CWRS at an average Alberta point (based on the average of the range) is sideways at $4.09/bu, CPS red is about $3.44/bu (slightly up from this year). Yesterday Nov canola futures closed at 306.50. With a $15 basis, that is about $6.60/bu. What are your costs like? What changes are you planning to do with your acres, compared to last year? What factors are you considering as you make your plans?

[Bruce14]

You are probably right about the shell shocked. Also possibly some of the reason why the site is quiet is that farmers have come to realise and rightfully so, that indicating acres to be sown collectively as a group ends up being used against them in the form of lower prices offered to them either in futures or special crops contract prices. What are your thoughts?

[brian]

I think people are shellshocked, and dont know what to grow. I sure dont. Nothing pencils out very well this year. Theres no place to hide. Im just going stick to my rotations, and not worry about it. The crop that has the most downside is board wheat. The acres look huge.

[brian]

A couple of comments on the "huge acres": 1. World stocks could be tighter next year, so it is important to look outside Canada as we are one part of the picture 2. Wheat acres will be up in Canada. But be careful if you hear numbers like "20%" increases. Sometimes those are spring wheat and do not include durum. I've seen some estimates like that, but if you include the huge decrease in durum acres likely to occur in Canada, than "all wheat (excluding winter wheat), Would be up 3-5%. 3. I agree that wheat acres will be up sharply -- but keep your eye on carry-out (ending stock) estimates next year for Canada, the US and the world. The more significant factor is that US & EU will be holding the bulk of the stocks. That is not good.

[brian]

I agree with Brenda. The wheat market is quite large in the world. The CWB, the International Grains Council and the USDA are all forecasting lower world production and for consumption to be greater than production, drawing down on ending stocks. The downside isn't so much that Canada may have more production available next year in terms of negatively influencing the market. It will have an effect, but I think a much larger impact is that the US will have large ending stocks this year. The EU will likely use subsidies on wheat in 99-00, at least in the early part of the year, and that may have a negative impact on lower quality wheats. If we have a poor quality profile next year, ie lots of feed and #3CWRS, we could face the impact of those subsidies. Overall, a 10% increase in Canadian production is fairly minor in world terms though. For non-durum wheat (I hate to use this term!) in Canada, a 10% increase would equate to about 2 million tonnes, which is nothing to sneeze at, but should be able to be absorbed in the market. World trade in wheat is forecast at about 96 million tonnes for 99-00 (up about 3 million tonnes from this year). We should have fairly low carryout of wheat this year in Canada. Durum carryout will increase in 98-99, and acres are likely to decline given the prices. By how much is the big question. Until the crop is in the ground, seeded acres are best estimates by the 'experts'! I'm curious (as are the other farmer members to the meeting room) to hear farmers' impressions of where things are at - post your thoughts to the meeting room!

[Bruce14]

As someone who collects and publishes acreage estimates, I feel that I should speak up on this issue. Always remember that the Canadian farmer is one piece of the world picture. As such, it is often broad market conditions that cause prices to change, not just the domestic conditions. For example, this year's canola prices are not just the result of high Canadian acreage estimates. They are more the result of increased production of all oilseeds in all parts of the world. Even large Canadian canola acreage this year will only result in a 7 - 8 million tonne crop. This compares to world oilseed production of about 290 million tonnes. The other thing to think about is this: Knowledge is power. Is it better to have the knowledge that acreage in a certain crop is too great or too small on a certain year? Do you think that you would be better off price wise without this knowledge? Personally, I don't think so, but that's just my opinion. What do you think?

[Bruce14]

If we accept the concept of efficient markets, where current prices fully reflect all publicly available information, then there is nothing to be gained by me as an individual obtaining knowledge of intended seeded acreages. It is unlikely that I as a individual producer would have any private knowledge of acreage numbers that would not be known to the market at large, and I as an individual cannot influence total production in any material way. By the time I become aware of market information, prices will already reflect the information quicker than I can react. If this is true then: · publicly available information is not helpful in forecasting future prices · in the absence of private information, the best forecast of future price is current price, perhaps adjusted for a long-run trend. · without private information, we should not expect to consistently earn more than the market-average price. On the other hand, market makers such as the multinational grain companies have a different perspective and with the benefit of private information can benefit from knowledge.

[Bruce14]

Having been in the number crunching business, I have to comment. You are right in that both grain companies and buyers have good access to market information like seeding intentions. The sources range all the way from people in the elevator system, seed/chemical sales, whats happening at the local seed cleaning plant, conversations with farm managers, etc. The main advantage of the acreage forecasts like GMS provides is too make sure the farm community is also dealing with realities in terms of production. An example today would be lentils. Acreage forecasts indicate more acres. One could argue that these forecasts are reducing new crop prices. Having said that, the feedback I am getting is that acres will be up big time this spring. Whether you like it or not, big lentil acres (assuming average or above yields and reasonable quality) will likely mean lower prices this fall - W. Canada is the major exporter of green lentils so what happens here at home determines prices. The long and the short of it is that the numbers are mainly for farmers benefit to help you make good decisions. We can argue about whether the numbers impact prices but the big issue is too make sure you are dealing with good market information and understand the impact of likely acreage shifts on prices.

[brian]

I guess I wasnt very clear in my first message. I was specifically talking about non durum board wheat, I dont grow durum, never have, and dont think about it much. A couple of additional thoughts. One is that US exports are running around 70% of USDA projections. If this continues, there's going to be alot of wheat left over down there. If they really want to move it, it's easy to figure out how they'll do it. Can you spell EEP? I do expect a significant carryover in Canada as well, looking at our CWB at work. The carryout into 99/00 plus big acres spells a very cautious CWB(with respect to PROs)and very little initial maney in my pocket. All that wheat in North America is enough to keep prices depressed for many months into the new crop year, even if it's just CBOT and Winnipeg(and of course the wheat board). But we can always hope for a drought!

[brian]

Valid comments. Do you grow CPS for more flexibility, or extra strong (which limits you to the CWB)? If wheat doesn't look good for some situations, what alternatives are people considering? Are some of you purposely aiming to grow non board grains to lower your risk?

[brian]

Absolutely. I grow CPS to sell into the feed market (and sell whenever I need or want to) as well as HRS. I grew extra strong for a few years but the yield wasnt good enough in this area to offset the extra value per tonne.