Cheerful and optimistic inside the grainy halls of the Canada Grains Council

From what I could tell from yesterday, it’s a pretty up, up and uppy time in the Canadian grain business.

At the annual conflab of the Canada Grains Council I heard about a gigantic surge of investments into the Port of Vancouver which can greatly increase its capacity to move grain, about grain companies investing bountifully in grain storage on the prairies, about trains running better, about a general confidence among all parts of the grain industry that the future can be substantially better than the present.

Much of this has to do with the death of the Canadian Wheat Board monopoly, an evolution that seems to have allowed a lot of companies to trust they have a lot better control of their assets and operations and therefore feel safer putting big bucks into concrete, steel and flesh to take advantage of booming world demand for prairie crops. If companies throw up a lot more elevator storage – and that seems to be happening and will make it closer to the U.S. situation, which has much more elevator storage – farmers will benefit from being able to cash-out much more of their crop at harvesttime.

The booming world demand for crops, I think, is the truly dominant underlying factor provoking all this investment and confidence. Clearing the CWB out of the way might have been the trigger, but the fact that there is more and more demand for crops means people can build exporting capacity and feel sure they will be able to max it out and run it at peak efficiency.

Let’s hope that confidence continues. In the last week confidence in crop prices has taken a big kick to the gonads after the USDA reported bigger old crop corn stocks than expected, suggesting demand has slumped more than expected. That’s hammered corn and oats prices (I still think it’s silly that oats follows corn, since it isn’t really a feedgrain), and hurt the other crops. New crop hasn’t changed nearly as much, so this might mostly be an old crop story and therefore not hurt the financial outlook for prairie farmers. But it certainly does underline the reality that demand isn’t as inelastic as the crop superbulls believe. As with everything, the answer to high prices is high prices, and last summer’s high prices for corn seem to have worked their magic on demand.

If this is an old crop story, then it won’t really register on long term investing decisions of companies and farmers. Violent wrenchings in the crop markets are something we’ve become accustomed to since 2007. This recent slumpage, most analysts would say, is just a short term thing and nothing fundamental in terms of the long term outlook, and it’s the long-term that’s important.

But if the USDA’s demand slumpage is right, it does suggest that there’s a limit to how far demand can be shoved with high prices, and that there might be times and conditions that cause demand to fall, even from lower prices. The world is still far away from being stable financially or economically, as any perusal of the news will show, so there are possibilities for another exogenous shock to knock our apple cart over.

So, for the sake of crop growers, let’s hope the demand weakness in USDA is a short-term thing and nothing substantial, and let’s hope the companies that rule the ag industry keep pouring money and confidence into the system. Right now, everything looks good.

Even loading ships in the rain in Vancouver. That’s finally happening and that was the thing that made me cheeriest about the CGC meeting yesterday. Even simple changes like that can make a system work much better, and remove a subject of annoyance that has bugged farmers for decades.

Cheerful and optimistic inside the grainy halls of the Canada Grains Council Agriculture  Crops   via The Western Producer

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