Trade disputes, extreme weather, political upheaval. You name it, it impacts Canada’s farmers overnight, even if it happens half a world away.

Where will the next big shock come from?

Looking backward is the best place to start. COUNTRY GUIDE asked three agricultural news hounds to retrace the last six months and name the biggest stories from a Canadian farm perspective. Bruce Burnett is market and weather analyst with the Canadian Wheat Board, Laura Rance is editor with MANI TOBA CO-OPERATOR, and Derek Burleton is deputy chief economist for TD bank.

The headlines they point to are still rippling through agriculture. All agree, by the way, that the biggest news story in the next few months is going to arise out of depleted grain stocks. But exactly where, when and how will it hit?

1. Russia sparks weather market

Farmers convert sunlight and water into food. When the water doesn’t arrive, markets go into overdrive. We saw it in spades when drought and extreme heat led Russia to close its borders to wheat exports last August. In January, the country extended its export ban into summer.

Russia’s wheat crop fell to 60 million tonnes in 2010, down 33 per cent from the previous year. Now there are increasing fears that its winter and spring crops will be hard hit in 2011 as well.

Canada’s excessive moisture may make matters even more volatile. Excess rain stopped seeding and delayed crop growth last year, holding the harvest to its slowest pace in six years. Then significant frost and heavy rainfall through the first three weeks of September resulted in the poorest-quality wheat, durum and barley crops since 2004. Warm, dry weather in October helped crops partially recover in some areas.

By the end of October, the Canadian Wheat Board announced it expected to export up to 15.8 million tonnes of wheat and barley in the current 2010-11 crop year, up about five per cent from its July estimate but much less than last year’s 18.8 million tonnes.

FORECAST:Bad news will continue hitting the market. Heavy rains in Australia and ongoing drought in China will have a big impact on 2011. It’s hard to see how good weather anywhere could compensate for all the bad.

2. Upheaval in the hungry Middle East

When Egyptian citizens gave Hosni Mubarak’s National Democratic Party the boot this February, the world mainly looked on in joy. Farmers can be excused for being a bit more nervous. Egypt is the world’s biggest wheat importer, buying five million to six million tonnes of wheat a year through international tenders. Local production is nowhere near enough to meet demand for 80 million people in the Arab world’s most populous nation.

Egypt’s military is entwined in the country’s economy. Most of the imported wheat is procured by the state buyer, the General Authority for Supply and Commodities (GASC). Since the start of the 2010-11 fiscal year last July, GASC has purchased only about 2.35 million tonnes of French, U.S. and Canadian wheat. Soaring food prices also triggered popular rage as demonstrations broke out in nearby Arab nations such as Jordan, Algeria and Yemen, with protests against unemployment, corruption and severe restrictions on personal freedom.

And that’s not even mentioning Libya, where March roared in like a lion — a very hungry lion. Supply chains were disrupted in Libya by their internal bloodbath and a mass exodus. The United Nations’ World Food Program responded by launching a three-month $38.7-million emergency operation to provide food assistance to 2.7 million people in Libya, Egypt and Tunisia.

The aftershocks of Middle East political upheaval were felt immediately in the commodity markets this winter. Oil supply came into question and prices increased. In Canada gas prices rose over $1.20 per litre. Grain and oilseed prices that had been zooming upwards tripped in February and since then have been staggering around, reacting to any news.

FORECAST:The Middle East is in turmoil. A sense of direction — almost any sense of direction — will settle the markets and restore trading patterns. How we get from here to stability, however, is hard to see.

3. Food Prices, Food Prices, Food Prices

The UN Food and Agriculture Organization’s index of global food prices climbed to a record high in February. That puts it higher than in 2008 when high food prices sparked riots in several countries. The index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, climbed 2.2 per cent in February, marking the eighth consecutive month to see an increase.

Rising food prices create global inflation concerns. In poorer countries, the fallout could be dangerous at best. The greater the percentage of a country’s disposable income that it spends on food, the more it is vulnerable to price fluctuations in ag commodities.

Discussions over free and open trade, which are critical to an export-oriented country such as Canada, are taking a back seat to the growing concern over world food security. It’s a talking point in the upcoming G20 summit and not from the perspective of opening up trade, as in the past. The discussion will be whether to intervene or impose price stability by controlling how the markets function.

FORECAST:Global governments are reaching a tipping point in which governments are deciding -rightly or wrongly -that food can’t be treated and traded just like any other commodity.

4. Biofuels and the USDA

Higher oil prices drive more grains into fuel. In the U.S., where alternative energy means ethanol, there’s an extra complication too. Ethanol represents a secure (i. e. non-Arab, non-Colombian) source of energy, which may be a huge consideration as the Americans ramp up the 2012 presidential race.

The U.S. corn ethanol industry got an early Christmas present when their subsidies and tariffs were renewed for one more year by being tied to the U.S. tax bill. In late January, Washington backed a proposal that would sharply boost the use of corn-based ethanol in more than half the nation’s cars. The U.S. Environmental Protection Agency’s announcement boosted the potential ethanol blend rate in gasoline to 15 per cent from 10 per cent in vehicles built from 2001 to 2006.

Still, those tax talks now seem like they were years ago. Budget pressures in Washington are intense. If Congress has to choose between cutting Medicare or corn-based subsidies, it’s going to be a heated, and very political debate.

When the U.S. Department of Agriculture screws up its prediction, everyone listens. In January this agency lowered its estimates of reserves. The news that America’s stockpiles of corn and soybeans ill be drawn down to uncomfortably thin levels this year spurred on grain prices and added to concerns over surging world food prices. The U.S. and Canada were supposed to make up for the shortages but weather restricted supply in North America’s breadbasket.

U.S. corn stocks are the tightest since 1996.

Now the USDA says that by the time next year’s crop is ready for harvest, stocks of soybeans will be just 140 million bushels, 10 per cent below analyst expectations. American corn stocks will likely stand at 745 million bushels, four per cent below trade forecasts and the smallest supply since 1995. This reflected a 70-million bushel hike in the feed, seed, industrial use, with ethanol accounting for 50 million of those bushels.

The organization also estimated crop acres for next year very high — 92 million acres of corn and 78 million acres of soybeans. Last year, U.S. farmers planted 88.2 million acres of corn and 77.4 million acres of soybeans.

FORECAST:Markets will be very nervous through the planting season. So will politicians. The biggest uncertainty of all is, at what point does Washington say it has to jump in?

5. China becomes corn importer

Drought in China raises the potential that China will enter world corn markets in a big way, buying up already tight stocks.

China is the world’s largest buyer of soybeans, importing 55 million tonnes in 2010, up 29 per cent from the previous year. Prior to 1995 the country was a net soybean exporter.

Now the transition seems to be happening with corn. China’s corn production in 2010 was also short due to drought and an every increasing consumption of meat. The USDA estimates that China will import one million tonnes of corn.

However, there’s a lot of uncertainty about the actual demand numbers, and a lot of speculation about how China will enter the markets. The country is known as a keen strategic buyer. To ease domestic prices, the Chinese government sells grain reserves and keeps that number under wraps. Currently, China does not allow genetically modified seeds to be planted, but it does import genetically modified grains and oilseeds.

FORECAST:China’s GDP grew 10 per cent last year, along with meat demand for its 1.3 billion people (19 per cent of the world’s population). Whether or not China actually imports corn, just the possibility will affect global markets.

6. Loonie’s erratic flight

The Canadian loonie may not affect global agriculture, but it sure hits home here. Over the last six months, the Canadian currency exchange rate was relatively volatile, generally tracking the commodity markets. Last summer, a loonie bought you 94 cents U.S. By February, it bought US$1.02.

Traditionally the Canadian dollar only moves a few cents per year. Market analysts say the current volatility is huge.

Bank of Canada announcements influenced the loonie exchange rate as well as any indications of recovery or failure of the U.S. economy.

FORECAST:Further economic trouble in Europe could jolt the currency market. The loonie may get tossed about unpredictably, bouncing beyond Ottawa’s limited control.CG