Market Trends

Monthly market trends commentary is written by Philip Shaw, B.Sc. (Agr.), M.Sc.

Market Trends Report for July-August 2017

US and World

In the United States corn and soybeans are doing very well despite hot temperatures descending on the US corn belt as of July 22nd. The crop may not be made, but to the computerized traders in Chicago that is not necessarily the case as future prices have descended since the June 23rd Brexit vote and the June 30th USDA actual planted acreage report. Commodities in general have seen a flight of investment capital through these events and it has manifested itself somewhat with a higher US dollar. Despite the hot weather in the US corn belt, rains have taken place setting up for huge crops in 2016.

On July 12th the USDA released their latest WASDE report. The USDA pegged corn production at 14.54 billion bushels and soybeans at 3.88 billion bushels. These are huge crops, especially for corn. Soybeans came in at about the average range of trade estimates. These production figures were based on the new planting estimates projected from the June 30 report.

The US corn stocks were increased to 2.081 billion bushels reflecting increased production, but was a little bit less than expected. The soybean stocks were also increased to 290 million bushels. Wheat, not to be outdone had US ending wheat stocks increased to 1.101 billion bushels. The USDA actually lowered Brazil's corn production to an estimated 70 MMT, which was down 7.5 MMT from their June estimate. The USDA pegged Brazilian soybeans production at 96.5 MMT, which is down .5 MMT from their June estimate.

On July 22nd, corn, soybeans and wheat nearby futures prices were lower than in the last Market Trends report. The September corn 2016 futures were at $3.35 a bushel. December 2016 corn futures were at $3.41 bushel. The August 2016 soybean futures were at $10.06 a bushel. The November 2016 soybean futures were at $9.88 a bushel. The September 2016 Chicago wheat futures closed at $4.25 a bushel. The Minneapolis September 2016 wheat futures closed at $4.82 a bushel with the September 2017 contract closing at $5.45 a bushel.

The nearby oil futures as of July 22nd closed at $44.19/barrel down from the nearby futures of last month of $48.99/barrel. The average price for ethanol on July 22nd in the US was $1.75 a US gallon down from last month at $1.86 a US gallon.

The Canadian dollar noon rate on July 22nd was .7588 US down from the .7687 US reported here last month. The Bank of Canada's lending rate remained at 0.50%.


In Ontario it has been the story of drought. It is variable in nature with some areas doing just fine like parts of Huron, Lambton, Chatham Kent and Essex County, while other areas like the Niagara region and East of Toronto very dry. Where it has been very dry the crop has been compromised and this must be factored in to the supply and demand equation within Ontario going into 2017.

Simply put, with approximately 2 million corn acres in the province a 1 bushel dip in provincial corn yield is a 2 million bushel decrease in overall production. Over the last few years, Ontario has become accustomed to record yields. However, with drought stalking the crop in different parts of Ontario a lower yield needs to be factored in to the Ontario corn supply equation. Already, with the price drop over the last several weeks Ontario is back to an import basis for corn with corn being brought into the province. Looking ahead, if the new crop continues to deteriorate the Ontario corn import basis may persist into late 2016 and beyond. Regional differences in basis may become very apparent.

While the drought takes away, it also has given back with regard to excellent harvest conditions for the Ontario winter wheat crop. Many producers if they had some timely rains have had record yields with excellent quality. Even if they did not have timely rains, the dry weather reduced disease pressure as the crop was reaching maturity. It was a good year to have a lot of wheat in Ontario.

With moisture being at a premium this year in Ontario the road ahead into August will be the same. Rain is needed to maintain what corn yield is there and it will be really needed to set pods on soybeans.

Old crop corn basis levels are .90 to $1.08 over the September 2016 corn futures on July 22nd across the province. The new crop corn basis varied from .70 to $0.90 over the December 2016 corn futures. The old crop basis levels for soybeans range from $2.65 cents to $2.80 over the September 2016 futures. New crop soybeans range from $2.30-$2.70 over the November 2016 futures level. The GFO cash wheat prices for delivery to a terminal on July 22nd was $4.87 for SWW, $4.74 for HRW, $4.87 for SRW and $5.72 for Red Spring Wheat. On July 22nd the US replacement price for corn was $5.07/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The grain market has turned exceedingly bearish, probably more so than is warranted. However, the market never takes any prisoners and it is always right. Since mid-June, December corn has declined approximately $1.08 cents per bushel and November soybeans have decreased $1.71 a bushel as of July 22nd. Brexit certainly had a part in that in the June 30 USDA numbers did their part. Noncommercial investment traders were leaving the market in droves and it continues in July despite scorching weather in the United States corn belt.

The Brexit vote also provided the fuel on June 23rd for the US dollar to gain significantly in value. Presently, on July 22nd, US dollar index is at 97.516. This is sharply higher from the 93.025 on the day of the Brexit vote. Markets never like uncertainty and having the European Union in peril sent investors to the US dollar. This created the atmosphere of capital flight out of commodities and with the good weather and the increased acreage in the United States it's been a formidable headwind to better prices.

Of course weather still matters and very hot weather is bearing down on the US corn belts as of July 22nd. It will certainly make a difference to soybean pod development in August. However, despite hot weather, there has been adequate "water" for most of the US corn belt with crops doing quite well as of July 22nd. 69% of US corn is good to excellent as of July 18th. The crop is still in flux, but computerized investment traders don't seem to care. That is, until they do.

Is it an overly bearish time? It would seem so, but the July 12th USDA report pulled no punches. A 14.540 corn crop is very big and much larger than the market had expected earlier this spring. The path ahead is still uncertain, even though most traders have lined up on the bearish side of the market.

Commodity Specific Comments


The corn crop in the US as a July 22nd is huge. The question is how huge? With the USDA pegging production of 14.540 billion bushels the question is now how will that change as we move ahead. In fact, the noncommercial demand represented by large global computerized investment traders thinks the crop is made. Even with the very hot evenings pushing over the American corn belt the 168 bu/acre projected by USDA seems suspect.

The July 12th USDA report actually cut US domestic demand down slightly, but it was made up for by increased exports. Total use of corn projected in the United States from the USDA report is 14.2 billion bushels, an almost science fiction number compared to the days gone by. Even in the bearish market environment we have now, that is a very good thing.

The December 2016 March 2017 corn futures spread is neutral at -9.75 cents per bushel as of July 22nd. The December contract is trading in the lower 2% of the five-year price distribution range. Seasonally, corn futures tend to trend down through early August.


The USDA kept US soybean yield estimate of 46.7 bu/acre in their July 12th report. This continued to be based on the 83.7 million soybean acres projected to be planted in the June 30th USDA report. This production figure will largely depend on August rains, which is always the kryptonite for North American soybean yield potential.

Of course soybeans have lost about $1.71 a bushel on the November futures since June 13th, pretty steep decline. This has been accentuated to some extent from a softening in soybean meal demand, but also the flight of capital out of general commodity markets. It might be hot and dry, but as of July 22 the investment traders don't care.

The November 2016 January 2017 soybean futures spread is considered bullish at -1 cent per bushel as of July 22nd. The November contract is currently priced in the lower 25% of the five-year price distribution range. Even though we have seen a steep decline in soybean futures, seasonally it tends to trend down in August.


The USDA and their July 12th report gave a forecast of 1.627 billion bushels for American winter wheat, up 8% from last month and 19% higher than last year's winter wheat crop. Simply put, the bearish situation got more bearish, which is almost hard to imagine. Needless to say, the Chicago SRW nearby contracts reached contract lows during the Ontario harvest. The Canadian dollar continues to act as a buffer against these futures price levels.

Of course the good news in Ontario is the excellent Ontario wheat crop currently coming off across the province. Having started in Essex County in and around Canada Day and continuing in central Ontario as of July 22nd, yields have been mostly above average. Quality has been good. With 1.09 million acres of Ontario wheat, it was a good year to have that many acres.

The Bottom Line (cont.)

In many ways, the grain futures price drop and the resulting cash price depreciation across the American corn belt is being mitigated once again from a relatively low Canadian dollar, which dipped under $.76 US on July 20th. This is the continuing saving grace for Ontario farmers. The loonie actually broke over $.80 earlier this year before dropping back recently. The value of the Canadian dollar always correlates to the inverse of the US dollar, which has seen renewed strength since the Brexit vote.

There is no question the outlook for prices is not very good. Seasonally, futures prices tend to go down into August and then we are into corn harvest in southern Illinois. However, the summer of 2016 has not totally played out yet. It will be a key factor especially in the development of US soybeans in August.

In Ontario there is a great regional difference with regard to the effect of drought. Some areas are extremely dry with little moisture all year; some areas have never seen drought and other areas are in between. Needless to say, it has led to the return of a corn import basis this summer. If the dry weather continues to persist it will lead to basis anomalies not always apparent over the last few years. In other words, daily market intelligence within the Ontario cash market needs to be a focus going forward.

Looking ahead it will continue to be about the weather especially in US growing regions, but will also be about what the USDA says about crop yields in future months. In fact, this huge crop in the United States can get bigger. There have been adequate rains up until this point to put crop projections very high. Water seems to be trumping extremely hot temperatures in the United States so far and it is reflected in market prices. The challenge for Ontario producers will be to market where they are comfortable and profitable. Daily marketing intelligence in both cash and futures will remain very important.

USDA Reports

The United States Department of Agriculture publishes monthly reports that may be of use to our members.

Crop production
World agricultural supply and demand estimates

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