Undoubtedly, 2012 was the year of the drought. We’re talking everywhere from South America in early 2012 through Eastern Europe, Australia and the U.S. this summer being hit by some hot, dry weather. As such, we’ve seen some prices that farmers across the Canadian Prairies have been able to benefit from. That being said, 2013 is a new year. Recent rainy/snowy weather in the U.S. Midwest and Plains have many speculators more optimistic about a winter wheat crop that went into dormancy in December in its worst condition ever (aka since records have been kept). Ultimately, the wheat complex, in general, has seen a decline to near pre-drought 2012 levels. Nonetheless, it’s important to note that this snow is falling on frozen ground, meaning it’ll likely become run-off once it melts and not be absorbed by the soil. Adding to this “return to the mean” is the fact that, a drought one year is not usually followed by a drought the next year (As you’re reading this you’re probably searching your brain for a specific set of years to tell me I’m wrong!). Ultimately though, you have to go off the averages. That’s what insurance does; that what investors do; that’s what the government even does. All things considered (yet weather pending, per usual), the aforementioned regions affected by dry weather are likely to return to normal, if not higher production. More specifically, more wheat is expected to be planted in Brazil, Egypt, France and Germany while return to more normal output is expected in the U.S., Australia, Russia and the Ukraine. Apparently, everyone’s chasing the high prices. Let’s stop traffic for a second though: world wheat demand is expected to increase at a relatively equal pace, as pointed out by the International Grains Council’s most recent forecast. One area of the world that will continue to affect the wheat marketplace is India and China. India has recently begun to sell off its surplus of wheat stocks (three years of 90 million+ tonnes will do that) through private exporters into Southeast Asia and the Middle East (mostly feed though). Meanwhile, in China, despite data reporting questions, the country is becoming better at how they raise a crop. Increases in yield have accounted for two-thirds of the production increase in the last decade, while a 10 per cent increase in planted land has accounted for the other third. A large amount of the production in China has been attributed to the increase in corn acres, a higher yielding grain. With an expanding commercialized livestock industry as a result of a growing middle class (with an appetite!), the demand for feed grains is growing significantly in the Asian Supernation. Specifically, by 2022/23, the U.S.D.A. says China will be importing almost 20 million tonnes of corn annually despite producing over 200 million tonnes themselves. How so? Things like China lending $3 Billion US to the Ukraine to upgrade their agriculture infrastructure (i.e. irrigation) so that more corn can be exported back to China. In North America, the corn industry is synonymous with ethanol and corn syrup. A government-subsidized market is definitely a large factor in the U.S.D.A.-estimate of 96.5 million corn acres to be planted in the U.S. this year, the most since 1936. With production forecasted to come in over 364.5 million tonnes, a recent Bloomberg survey of 17 analysts expects the price to decline to $5.24 per bushel by the end of 2013. Similarly, an estimated soybean planted crop of 77.5 million (a record) will help to accommodate the rising emerging market demand for oilseed, but ultimately push the price down to $12.12 a bushel by year’s end. At the end of the day, should we see more average growing conditions, production should be higher across the board this year and prices will most certainly reflect this in the long-term. Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).