Under the Agridome
Philip Shaw 2/16 7:03 AM
There is something about farm machinery that many farmers find particularly intoxicating. I don't count myself as one of that group, but I did have a sojourn for several years, reviewing farm equipment for a large Canadian agricultural magazine. During that time, I learned a lot about different details of tractors, combines and assorted other pieces of machinery. So when I make my way back to the Louisville Farm show, it takes me back a bit.
I used to really enjoy reviewing combines. I think I felt this way, because I've driven combines all my life, and they have always been a challenge to keep going. There are always so many moving parts that invariably something will go wrong. So when I visit the Louisville show and I see all these new shiny combines, I still take a second look. There is something about increasing combine capacity, I've always found intriguing.
Harvesting 5,000 bushels of corn in one hour would be a challenge for me. My combine simply does not have that capacity, nor do I have the capacity to get the grain away from the combine. However, last week when I was in Louisville, I overheard a salesman say this particular yellow and black combine could thrash 5,000 bushels of corn per hour. Even though I was aware of that, hearing it again impressed the heck out of me. The vicious cycle of efficiency continues.
At about the same time, one of the national sales managers for one of the large tractor companies told me it would be a lot easier to sell these tractors if we could get the price of corn higher. I then went into a longer discussion with him about how farmers could afford to pay for these tractors. The discussion morphed into talking about leasing and about building equity by leasing. You can imagine that my agricultural economist hair was standing up on the back of my neck. This building equity thing through leasing I'll never get.
Just in time, we have some Argentine corn in trouble. The dry weather in Argentina is having a bigger effect on the price of soybeans but, it is rubbing off on the price of corn. Fifty-seven percent of Argentina corn is poor or very poor according to the Buenos Aires Grain Exchange. Slowly, December 2018 corn is inching toward $4.00. Of course, get the price about $.50 higher, and those tractors will be flying off the lot.
Interestingly enough, it does work that way. In the era of the super-low interest rates, carrying costs can be the litmus test for moving this machinery. Any increase in the price of corn, combined with its annual productivity increases, puts those tractor-purchasing decisions on the front burner.
One highlight of any Louisville trip for me is the DTN seminars with my DTN colleagues Darin Newsom and Bryce Anderson. Bryce outlined his take on 2018 crop weather with an excellent discourse on the current Argentinian problems. Darin took over from there and said, among other things, that in 2018 it is about the weather. In fact, at one point he equated trading grains with trading weather derivatives. Trading these Argentinian headlines is surely working for the moment.
Trading the headlines is so interesting for my agricultural economist mind. I have bought into it over the years, because I've seen it work in the market many times. Computer algorithms or noncommercial interests get caught up in the hot mess of headlines typical of many drought situations in summer. Not only is the corn not doing well in Argentina, but as of Feb. 7, 56% of Argentinian soybeans were looking poor to very poor. It has put a bit of testosterone into the soybean market and maybe a little bit more into the soybean meal market. Traders are measuring to see how much soybean meal Argentina will be able to ship.
This is all happening with the February USDA in the rearview mirror with a projected soybean ending stocks of 530 million bushels (mb). It's also happening at a time when traders will soon begin to consider whether the United States will grow more soybeans next year than corn. Added to that is it's happening at a time when Brazil soybeans have had adequate rain, in fact too much rain at times, on their way to what looks like a 112 million metric ton soybean crop. So trading headlines might not be as crystal clear as first thought. There is still a lot of relative bearishness in the soybean complex.
It is what it is, but how about those tractor and combine sales? Will crop prices rise enough to make the Louisville Farm show an even more enticing place to go next year? Can I order that brand-new, sleek black and yellow combine? The answer of course is complicated, but in 2018 more so than ever, as Darin implied, it's all about the weather.
Thank-you for all your notes, email and letters. Keep it coming. If you have an opinion or comment, please feel free to get in touch.
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Philip Shaw M.Sc., RR#2 Dresden Ontario N0P 1M0
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