Market Trends Report for October-November 2017

US and World

It is that time of year again when combines are rolling. However, uneven weather in parts of the American corn belt and Ontario has delayed harvest. There is nothing particularly unusual about this as we have it every year. US crops are huge coming off the fields and the market will certainly be making further adjustments. The final determinant on yield will come in the January USDA report. However, the October USDA report released October 12th helped to re-focus the trajectory of grain prices as we head into the end of the 2017.

In the October 12th report USDA increased US national corn yield to 171.8 bushels per acre, an increase of 1.9 bushels per acre over their September estimate. This put 2017/2018-corn production at 14.28 billion bushels on the high-end of pre-report estimates. The USDA also pegged corn-ending stocks at 2.34 billion bushels, which was up 5 million bushels from their September estimate. This number was a bit of a surprise especially with which dry weather throughout the American Midwest the summer.

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USDA estimated soybean production to be at 4.431 billion bushels, which was a decrease from their September estimate. This was based on a .4 bushel/acre cut in US national yield down to 49.5 bushels per acre. However, the US soybean harvested acreage is at a record high of 89.5 million acres, which was up 1% from the USDA September estimate. The US domestic soybean ending stocks were also pegged at 430 million bushels, which was down 45 million bushels from their September estimate. This was generally looked at as bullish on report day and soybeans responded by going up $.26 a bushel. US domestic wheat stocks were set at 960 million bushels, which was 27 million bushels higher than their September estimate.

On October 13th, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were higher. December corn 2017 futures were at $3.52 a bushel. The November 2017 soybean futures were at $10 a bushel. The December 2017 Chicago wheat futures closed at $4.39 a bushel. The Minneapolis December 2017 wheat futures closed at $6.15 a bushel with the September 2018 contract closing at $6.33 a bushel.

The nearby oil futures as of October 13th closed at $51.45/barrel up from the nearby futures of last month of $49.89/barrel. The average price for ethanol on September 15th in the US was $1.65 a US gallon down from last month at $1.75 a US gallon.

The Canadian dollar noon rate on October 13th was .8008 US down from .8209 US reported here last month. The Bank of Canada’s lending rate increased to 1.0%.

Ontario

In Ontario, harvest has been in full swing across the province. However, rainfall starting on October 5th has held things up. Soybean yields have been variable across the province, generally speaking a little bit less than last year. Droughty conditions in summer in some areas have impacted the soybean yields. Many wheat fields got planted right after the combine rolled through early in late September and early October. As of mid-October many of these fields have emerged and look very good. There will be a renewed effort to get wheat planted once the weather clears and the ground dries up.

Basis levels have been maintained since the last Market Trends report. The Canadian dollar has dropped off the $.82 level and is currently fluttering near the $.80 level as of October 13th. This has helped maintained basis levels across the province for both corn and soybeans. However, it is a far cry from where it was last May as cash basis was eroded by the increase in the Canadian dollar. As always, Ontario farmers are focused on the dollar’s value and its effect on Ontario cash grain prices.

As we move through harvest basis conditions may change locally depending on the quality and availability of corn. Statistics Canada is estimated that Ontario corn will be 169.5 bushels per acre. If this is the case at over 2 million acres, the corn supply Ontario will be burdensome into the future. However, those numbers seem optimistic at this time. As we move into harvest newer information will refocus the Ontario corn supply equation.

Old crop corn basis levels are $.60 to $1.10 over the December 2017 corn futures on October 13th across the province. The new crop corn basis varied from .50 to .85 over the December 2017 corn futures. The old crop (crop being harvested now) basis levels for soybeans range from $1.75 cents to $1.87 over the November 2017 futures. New crop soybeans range from $1.60-$1.70 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on October 13th were $5.11 for SWW, $5.36 for HRW, $5.23 for SRW and $6.55 for Red Spring Wheat. On September 15th the US replacement price for corn was $4.79/bushel. You can access all of these Ontario grain in the marketing section at Grain Farmers of Ontario.ca.

The Bottom Line

It is still a bearish time for grain prices even though the October 12th USDA did shine a bit of light on the soybean market. The report was actually quite bearish for corn, increasing yield as well as ending stocks. However, in many ways it’s not new news. The August USDA report was the surprise of the market and we have been digesting this big crop for a while. Demand for all three crops remains extremely strong at record levels.

Nearby soybean futures at the $10 mark is significant especially on a year with a record crop at harvest time. The focus soon will shift to South America where a new soybean crop is being planted in Brazil and soon to be Argentina. Planted acres are expected to increase in Brazil, but not necessarily yield vs. the record levels of last year. If dry weather comes to South America and Brazil production is cut back below 100 MMT, then all bets are off for soybean futures prices. This drama will lay itself out in the next few months.

In the October 12 USDA report, the Brazilian soybean ending stocks came in at 184 million bushels. For the next growing season USDA is pegging Brazilian ending soybean stocks at 90 million bushels. Without declining supply in the background, it makes any weather concern going forward in Brazil a principal trigger on pushing soybean futures higher.

The increased corn yield in the United States coming out of the October 12 USDA report is testament partly to the productivity of modern corn hybrids. This past growing season was extremely uneven and dry in many parts of the Midwest. However, harvest yields are strong even in some areas of dry weather. This has put cash prices on the ground in the United States slightly over $3 a bushel. In many ways, one must consider how profitable this is and its implications for planting intentions in 2018.

Commodity Specific Comments

Corn

The corn market is range bound in a much smaller range than over the last nine years. In other words, the corn market behavior tends to resemble the market pre-ethanol, when prices didn’t move in high ranges. For instance this year there have been predictions of $5 or $6 corn futures. The futures range is more like $3.35 to $4.25

Corn has been range bound, but it is a low range, not good if you are a corn bull. On the December daily chart we see a continuum of lower highs and lower lows over time. This is definitely not bullish either short term or long term. Distant corn futures continue to show big carries.

The December 2017 March 2018 future spread is currently -13.75 cents, which is considered bearish. The December contract is currently priced in the lower 10% of the market’s five-year price distribution range. Seasonally, the corn market tends to trend up through the first week of November.

Soybeans

One thing that the October 12th USDA did to the soybean market is taking a bit of fear out of it. There was no increase in yield or ending stocks, which some analysts had been predicting. With soybeans closing of the $10 mark on the Friday after, there was some renewed optimism in a bearish grain environment.

Central Brazil is dry and this remains a source of concern for anybody wanting to short the soybean market. The trend in soybeans is up as well as December soybean meal, reflective of the robust demand and concerns in South America.

The November 2017 January 2018 soybean futures spread these -10.5 cents, which is considered bearish. The November contract is currently priced in the lower 34% of the last five-year price distribution range. Seasonally soybean futures tend to trend up through the first week of December.

Wheat

Thankfully for Ontario producers, wheat prices spiked at harvest time this past year. This was partly due to the drought in the American Northwest plains causing problems in the spring wheat market. This spilled over onto the Chicago SRW market. However, since then the wheat market has returned to its more bearish ways with onerous stocks worldwide and shrinking acreage in the United States.

Ontario acreage is likely in flux in the fall of 2017 because the soybean crop is later than usual and now is affected by wet weather. It is simply a bit more difficult to get all the wheat acres intended in the ground this fall. With that in mind, it is unlikely that Ontario wheat acres will reach 1 million, more likely around the 800,000-acre mark.

Commodity Specific Comments (cont.)

In Ontario, Statistics Canada has estimated Ontario average corn yield of 169.5 bushels per acre. If this comes to fruition it would be a record corn yield pushing Ontario supply to unprecedented levels. However, Ontario corn acreage of over 2 million is up for debate as well as yield, as Ontario has had an uneven growing season too.

How this affects Ontario corn basis levels is up for debate. At the present time there is American corn coming into Ontario, but is this is unlikely to continue based on the Ontario supply just now being harvested. It will depend on how reluctant Ontario farmers are to sell $4 corn. If they are reluctant, US corn will be brought in to satisfy industrial and feed users. It is always a constant dance with Ontario cash prices with US replacement price.

The Canadian dollar has fallen back to .8008 as of October 13th and this will continue to play a role in the Ontario cash grain market. Last May when the loonie was 72 cents, in hindsight, flat pricing regardless of futures or basis made sense. Hindsight is always 20/20, but as Ontario producers, we must be ready to adjust our marketing with the volatility of the Canadian dollar. Ontario soybeans and wheat prices are always the most affected, corn not as much. At times, flat pricing works within our Ontario marketing environment.

There is still a world of hurt out there with regard to big crops coming out of the field. However, despite that, demand continues unabated and continues to grow. At a certain point, there will be a hiccup in supply, which will send prices higher. A soybean futures price of $10 might be gift wrapped this harvest season. The challenge for Ontario farmers is to measure all of these different marketing factors. There will be many marketing opportunities ahead.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for September-October 2017

US and World

Across the US corn belt American farmers are starting to harvest another huge crop. The growing season was uneven with widespread drought in the Northwest plains and quite a wet start in the Eastern corn belt. This was accentuated by somewhat dry conditions in mid-summer, but it looks like good genetics and modern farming methods have won out. As we careen into October, US farmers are set to harvest their third-largest corn crop and the largest soybean crop ever.

On September 12th the USDA released their latest estimates of US crops. USDA estimated US corn production would come in at 14.184 billion bushels, with an average yield of 169.9 bushels per acre. This was seen as a bit of a shock to the market as traders were expecting lower yield estimates. The USDA also increased 2017/18 ending stocks to 2.335 billion bushels, up 62 million from their August report. This US crop is approximately 6% less than last year with the yield 4.7 bushels per acre lower.

The USDA estimates for soybeans came in at 4.431 billion bushels, which will be a record. The USDA actually bumped yield up half a bushel from their August forecast at 49.9 bushels per acre. The USDA also kept 2017/18 ending stocks at 475 million bushels. Globally, soybean production was pegged at 348.44 MMT, a slight increase from August. World ending wheat stocks for 2017/18 were lowered slightly to 263.1 MMT.

On September 15th, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were slightly higher. December corn 2017 futures were at $3.54 a bushel. The November 2017 soybean futures were at $9.68 a bushel. The December 2017 Chicago wheat futures closed at $4.49 a bushel. The Minneapolis December 2017 wheat futures closed at $6.21 a bushel with the September 2018 contract closing at $6.30 a bushel.

The nearby oil futures as of September 15th closed at $49.89/barrel up from the nearby futures of last month of $48.82/barrel. The average price for ethanol on September 15th in the US was $1.75 a US gallon down from last month at $1.79 a US gallon.

The Canadian dollar noon rate on August 11th was .8209 US up from .7883 US reported here last month. The Bank of Canada’s lending rate increased to 1.0%.

Ontario

In Ontario soybean harvest has begun in some locations in southwestern Ontario. Generally, the Ontario crop is about 10 days to two weeks later than normal. Warm weather in mid September was welcome and will continually be welcome to take the Ontario corn crop to black layer. Generally speaking, this Ontario corn crop has the potential to be about the same as last year at approximately 160 bushels per acre. However, this will greatly depend on a long warm open fall.

Basis levels for grain have been pressured because of the increase in Canadian dollar value going into October. A four-cent rise in 30 days has a huge impact on the soybean and wheat basis, a quintessential example of managing our foreign exchange risk in Ontario. Also too, corn prices at import levels are apparent for industrial use in Ontario. As we move into October there will be a transition on these cash corn prices as our supply becomes harvestable. Producers will need to monitor these corn basis levels very closely.

Ontario wheat producers were somewhat fortunate this summer to be harvesting wheat at the same time as a multiyear price spike hit the market. Ontario wheat prices have retreated again, partly because of lower futures, but also our Canadian dollar. As soybean harvest ramps up in Ontario, wheat will be going in the ground, but at these prices it is hard to fathom a big Ontario acreage. An open, dry and warm fall may change that equation for wheat acreage.

Old crop corn basis levels are $.69 to $1.10 over the December 2017 corn futures on September 15th across the province. The new crop corn basis varied from .62 to $1.05 over the December 2017 corn futures. The old crop basis levels for soybeans range from $1.35 cents to $1.50 over the November 2017 futures. New crop soybeans range from $1.25-$1.52 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on September 15th were $5.11 for SWW, $5.35 for HRW, $5.23 for SRW and $6.48 for Red Spring Wheat. On September 15th the US replacement price for corn was $4.82/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

The Bottom Line

It remains a bearish time for grain futures markets. However, one of the biggest differences this time around is the Canadian dollar is not providing the cushion it once did. The rise in the Canadian dollar since May 2nd has impacted cash grain prices in Ontario more than futures variability over the last 6 months. With harvest upon us, it’s time to recalibrate and refocus our marketing plans.

Commodities our out-of-favor as an investment vehicle and it is been this way for quite some time. Investment capital has fluttered into the stock market and it remains at very high to record levels. In many ways, their needs to be a real supply and demand reason for grain prices to go higher and investment capital to get back into commodities.

That may come in the form of La Nina, which typically is very bad for South American grain production. Soybean planting will be ramping up in Brazil this October and weather reports of Brazil crop conditions have to be monitored closely. If La Nina manifests itself in a big way in South America, it could mean a complete reversal of where we are now. Of course, that is a big if.

China continues the dynamic demand for soybeans. They recently announced the new ethanol initiative 2020 to power cars and help reduce pollution. This will amount to approximately 1.8 billion bushels in additional Chinese corn demand by 2020. Increased Chinese production and old crop stocks will likely satisfy it. Wheat is also used in the ethanol processing in China. They are heavy buyers from the Black Sea region.

Commodity Specific Comments

Corn

Many people are asking whether we’ll get a pre-harvest bounce in corn futures prices as the last few years have seen corn futures bottom before harvest. Of course, nobody knows, but corn stocks are onerous and some analysts say an expectation of $3.75 to $3.95 per bushel might be all that can be expected. If combines roll and the yield isn’t there, that might be part of the higher price equation.

There is also the thought that corn may follow soybeans if South America has some planting issues. It is dry now in Brazil, but wet in Argentina. If the soybean complex sees a rise in prices, it is likely that corn would follow. Needless to say, it is the third-largest corn crop ever in the United States and there are a lot of “what-ifs” that need to be answered to get prices higher.

The December 2017 March 2018 corn futures spread is -12.5 cents, which is considered bearish. The December contract is currently priced in the lower 14% of the market’s five-year distribution range. Seasonally the corn market tends to trend down through the first week of October.

Soybeans

The soybean crop in the United States is going to be a record by a country mile even though the yield is going to be slightly less than last year. Soybean demand continues unabated currently projected at 4.326 billion bushels. US exports are up as well as soybean crush. This is the saving grace for soybeans.

The increase in the Canadian dollar since May 2nd has resulted in about a dime appreciation against the US dollar. It has been a combination of a declining US dollar and rising Canadian interest rates. This was akin to throwing gas on a fire, but it has resulted in our soybean basis decreasing about $1.40 a bushel since May. Clearly, this is an example of how our cash price volatility is greater sometimes than futures price range over time.

The November 2017 January 2018 soybean futures spread is -10.25 cents, which is considered bearish. The November soybean contract is currently priced in the lower 33% of the last five-year price distribution range. Seasonally old crop soybeans tend to trend down through mid-October.

Wheat

The wheat market has come down from summer highs, which was spurred by the drought in the American Northwest plains. Wheat stocks are still very onerous, but keep in mind that China holds about 48% of world wheat stocks. Take them out of the equation and it puts wheat stocks in a bit more precarious stance. Needless to say, there is still a lot of wheat in the world and Russian production continues to ramp up. It is likely that North American production continues to get smaller in 2018.

In Ontario, wheat will be planted as soon as combines roll. Even though the price has retreated lately there was opportunity to lock in 2018 wheat at $6/bu earlier in the summer. For those producers comfortable with the risk, it certainly looks good now. However, there will be many marketing opportunities ahead for wheat. It is a long way from payday in 2018.

The Bottom Line (cont.)

The Bank of Canada has doubled their interest rates over the last two months. This had the effect of doubling down on the Canadian dollar, which has been rising as the US dollar has been falling. The Canadian economy is growing at an annualized rate of 4.5%, which is adding fuel to the loonies rise. This has been very negative for Ontario cash grain prices. This foreign-exchange volatility will likely continue further challenging our grain marketing plans.

There certainly could be regional variability within Ontario with regard to basis values in corn this fall. Yes, we are hoping for a wide-open fall, but if it does not happen it is likely basis anomalies will show up. The Eastern Ontario corn basis continues to be stronger. This is a historical pattern and with Québec corn production looking to be down, it even might strengthen going into 2018. However, it is likely that the typical Ontario price pattern of too much supply in the fall and winter will impact the corn basis this fall and into 2018.

As of September 15th, both corn and soybeans nearby futures are above their lows. (Aug 31st $3.44 corn Aug 16th $9.21) Of course, there are a few possible black swans swimming around. North Korea remains a rogue state with nuclear missiles. The US President has mused about not trading with any country that trades with North Korea. Simply put, these things talked about “out loud” would have huge ramifications for US soybeans. NAFTA talks are continuing. A market firecracker may lie within.

As we move into October, we’ll have a much better idea about crop size both in the United States and in Ontario. It will be intriguing to see if corn and soybean futures stay above their lows. In Ontario basis levels should give some real clues on both the quantity and quality of Ontario corn reaching maturity. South America will be in their planting season. La Nina may be manifesting itself. The challenge will remain to recalibrate and refocus our marketing plans based on many of these marketing factors. Daily market intelligence will remain key. Despite our present bearish price environment, history tells us there will be many marketing opportunities ahead.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for August-September 2017

US and World

It has been an uneven growing season in much of the American corn belt. The Western corn belt has been dry especially in the Dakotas, while the mid south and Eastern corn belt were inundated with heavy rains earlier in the spring. The forecast in late July turned cooler and wetter for all of the American corn belt. This new forecast essentially changed much of the outlook for the American crop, but still many analysts were expecting lower August USDA numbers reflecting some of the earlier tough conditions for US corn and soybeans. Anticipation of the August 10th USDA report was filled with expectations of lower yield projections.

On August 10th, the USDA lowered their projected corn yield estimate to 169.5 bushels per acre down from their earlier projection of 170.7 bushels per acre and less than last year’s 174.6 bushels per acre. At the same time the USDA raised soybean yield expectations to 49.4 bushels per acre up from their 48 bushels per acre earlier estimate. This pegged 2017/18-soybean production at 4.4 billion bushels. Both of these USDA estimates rocked the grain market August 10th, as it was a big surprise. With so much uneven weather affecting this crop in the field a US corn yield of 165-166 bushels per acre was a general trade estimate. Futures prices plummeted on this very bearish report.

The USDA corn yield estimate would be the third highest on record for both yield and production. The new crop corn ending stocks were trimmed slightly to 2.273 billion bushels. Old crop ending stocks remained at 2.370 billion bushels, the same as July. Both old and new crop global ending stocks for corn were above pre-report estimates. If the 49.4 bushels per acre of soybeans predicted by USDA is realized, it will be the largest US soybean crop on record. Interestingly enough, within this bearish report, USDA pegged old crop ending soybeans stocks at 370 million bushels, below trade expectations. New crop ending stocks edged up to 475 million bushels. All US wheat production was reduced to 1.739 billion bushels, the lowest since USDA began keeping records.

On August 11th, corn, soybeans and wheat futures were lower than the last Market Trends report. September corn 2017 futures were at $3.60 a bushel. The July 2017 soybean futures were at $9.45 a bushel. The September 2017 Chicago wheat futures closed at $4.39 a bushel. The Minneapolis September 2017 wheat futures closed at $7.74 a bushel with the September 2018 contract closing at $6.23 a bushel.

The nearby oil futures as of August 11th closed at $48.82/barrel up from the nearby futures of last month of $45.77/barrel. The average price for ethanol on August 11th in the US was $1.79 a US gallon up from last month at $1.77 a US gallon.

The Canadian dollar noon rate on August 11th was .7883 US down from .7969 US reported here last month. The Bank of Canada’s lending rate increased to 0.75%.

Ontario

In Ontario weather continues to dominate growing conditions and is variable across the province. A tough wet year is continuing for many farmers in Eastern and Central Ontario, while other areas of the province are parched for moisture. Variability can sometimes be a buzzword for crop conditions, but it is very real this year in Ontario.

Basis levels for grains in Ontario have sunk into August largely due to the appreciation in the Canadian dollar over the last several weeks. On July 27th, the Canadian dollar reached up over $.80 US and basis levels have responded accordingly. The Ontario corn basis remains below import levels at the elevator level, but continues to approach those levels for industrial use. As we move ahead this may change significantly into September based on dwindling old crop supplies and the condition of the Ontario corn crop growing in the field.

Amid raindrops and parched fields producers are making decisions about fungicide and Western bean cut worm in corn. With the problems in Ontario fields it is likely that the yield will continue to trend below 2016 setting up a scenario for an import basis in 2018. Needless to say, late August and early September weather will help determine that.

Old crop corn basis levels are $.55 to $1.00 over the September 2017 corn futures on August 11th across the province. The new crop corn basis varied from .65 to $1.06 over the December 2017 corn futures. The old crop basis levels for soybeans range from $1.94 cents to $2.07 over the November 2017 futures. New crop soybeans range from $1.65-$1.98 over the November 2017 futures level. The GFO cash wheat prices for delivery to a terminal on August 11th were $5.19 for SWW, $5.19 for HRW, $5.12 for SRW and $6.64 for Red Spring Wheat. On August 11th the US replacement price for corn was $4.96/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

The Bottom Line

The USDA has done it again, re-setting the goalposts of a grain futures market, which was poised to react to lower yield expectations. However, like so many times in the past when market players were on the wrong side of that expectation, the USDA went the other way, laying out an extremely bearish market report sending prices downward. The resultant vitriol from the report was strong, especially after USDA’s own crop conditions numbers had been the lowest since 2011, when corn yield eventually settled 6% below trend line. The August 2017 USDA report ignored that.

Doubting USDA reports can be a growth industry. It is best to leave it there and move on. What we have is the third highest US corn crop projected ever based on 169.5 bushel per acre yield, which is the lowest since 2015. The US soybean crop has the potential to be the biggest ever. The one redemptive factor in all of this is a demand picture for both corn and soybeans, which seems insatiable. That is good, especially with the consistency of abundant supply uninterrupted from American fields.

A key point of light in the USDA August report was the old crop soybean ending stocks. USDA lowered US domestic soybean ending stocks down to 370 million bushels. This is down from last months estimate of 410 million bushels. It represents a 23% reduction from the 480 million bushel ending stocks estimate from last November and December. These stocks will continue to decrease based on average usage over time. It suggests that the final old crop soybean ending stocks could come in close to 170 million bushels. That contrast is huge in these projections, so much lower than the 480 million bushel prediction from USDA last year.

Of course, the focus of the market has changed, almost scripted from these USDA numbers. The old crop focus has been replaced by all the bearish new crop projections. The USDA’s own weekly crop condition numbers didn’t seem to matter. Moving ahead, the September USDA report may readjust things, but it may not. Futures market clues via future spreads can offer informed market intelligence.

Commodity Specific Comments

Corn

Corn received somewhat of a gut punch from the USDA with yield predicted at 169.5 bushels per acre. With a sizzling hot July that yield figure was an outlier to the market. If the USDA is right about that, it may be a testimony to modern genetics. However, there are many analysts to say be patient, the yield will come down when combines start to roll.

Corn continues to suffer from the very onerous old crop stocks from last year. This is happening with corn harvest already underway in the American South and moving into southern Illinois. The August 10th USDA was a major bearish market flashpoint for corn, which may be challenged to continue to maintain its long held trading range.

The December 2017 March 2018 corn futures spread is -11.75 cents US, which is considered bearish. The December contract is currently priced in the lower 42% of the past five-year price distribution range. Seasonally, the corn market tends to trend sideways through late August and early September.

Soybeans

Soybeans may be the great liars in the field, but so far the USDA is very optimistic pegging their production of 49.4 bushels per acre. Many analysts think it would have been more characteristic of USDA to keep the soybean yield 48 until August weather was finished. However, it is what it is, in the end soybeans always tell the truth, there is no way of knowing what the September USDA estimate will be.

As we head into later August, despite the conjecture on yield projections, as of now this is likely to be the biggest soybean crop ever in the United States. The good spot in this bearish supply scenario is demand continues to be bright. Of course, geopolitical events surrounding the Korean Peninsula weigh in the background of this market.

The November 2017 January 2018 soybean futures spread is -8.75 cents US as of August 11th and this is considered neutral. The November contract is currently priced in the lower 21% of the past five-year price distribution range. Seasonally, old crop soybeans tend to trend up through late August.

Wheat

The run-up in the wheat futures market fueled by the devastating drought in the Dakotas is slowly coming back to earth. The drought is not over and the wheat is still dead, but the market has digested the information. This is somewhat typical for extreme drought situation price movement. Other wheat class markets have responded accordingly. World stocks continue to be onerous.

The run-up in the spring wheat market did provide marketing opportunity for Ontario wheat farmers. The harvest continues in some parts of Eastern Ontario, all but finished west of Toronto. Producers will soon turn their focus on wheat planting intentions for late September.

The Bottom Line (cont.)

Geopolitical events are always in the background of any grain market and this summer is no different. However, the specter of nuclear conflict in Northeast Asia has obvious connotations for markets. Any stray nuke would ruin the soybean market overnight. Of course, nobody wants to go there. Having said that, the issues, which pertain to North Korea, the United States and China are always relevant in the soybean market. It bears watching, especially as the world’s greatest soybean consumer is so close to the issue.

As always the Canadian dollar is being instrumental in Canadian grain marketing. On July 27th it briefly went above the $.80 US level. Last May 2nd, it was in the 72 cent US level. As of August 11th it has retreated back to the 78 cent US level. However, the volatility in the Canadian dollar over this time frame has created huge gyrations in Ontario cash grain prices especially for soybeans and wheat. The Canadian economy is strong and the Bank of Canada has responded by raising interest rates and this may continue. Hedging our Ontario cash prices and managing our Canadian dollar risk will continue to be important.

Looking ahead, crop weather is still important as we move into September. Simply put, there is still yield to be gained or lost in the United States. We are also edging closer to planting intentions in the southern hemisphere this fall. The Ontario crop needs good growing conditions in later August and September to finish, as much of it is later than usual. This may affect basis levels especially on a regional basis throughout Ontario as we move into September.

It has been a tough month for grain markets. In fact, it is been a tough few years for grain markets in the United States. The price optics in Canadian dollars has been somewhat different. However, it just means that Ontario farmers will continue to be challenged to find and seek out market opportunities. Despite the huge supplies that seem apparent, nothing is ever for sure in the world of production agriculture, even now in August 2017. Demand for grain remains at record levels and is growing. As we move ahead, standing orders for grain will remain an important tool. Separating emotions from our grain marketing decisions will remain difficult. However, it’s imperative in this supply driven market.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for July-August 2017

US and World

It is a sizzling summer in the American heartland with North and South Dakota taking the brunt of a devastating drought, which has impacted spring wheat country. Temperatures across the American Midwest have been triple digit for much of July and it remains to be seen how this will impact corn and soybean crops in the United States. The 30-day forecast for the American Midwest is for a continuance of hot and dry weather.

On July 12th the USDA weighed in with their latest estimates of US crop production. In the report the USDA increased US corn production at 14.255 billion bushels with the US national yield sustained at 170.7 bushels per acre. At the same time the USDA increased soybean production to 4.26 billion bushels. This was based on a five million bushel increase based on expected harvested area at 48 bushels/acre.

The USDA also raised new crop corn ending stocks by 75 million bushels. This was offset to some extent by an increase of 50 million bushels in the feed and residual usage. The 2017/18 corn ending stocks are now estimated at 2.325 billion bushels, which is up 215 million bushels from earlier estimates. The new crop soybean ending stocks were reduced by 40 million bushels to 410 million bushels. This lowered new crop soybean ending stocks by 35 million bushels down to 460 million bushels. All wheat production was raised. However, spring wheat production estimates were slightly higher than pre-report estimates, but down 21% from last year. US Durum production was below pre-report estimates and 45% less than 2016.

On July 21st, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were higher. September corn 2017 futures were at $3.79 a bushel. The July 2017 soybean futures were at $10.09 a bushel. The July 2017 Chicago wheat futures closed at $4.99 a bushel. The Minneapolis September 2017 wheat futures closed at $7.65 a bushel with the September 2018 contract closing at $6.66 a bushel.

The nearby oil futures as of July 21st closed at $45.77/barrel down from the nearby futures of last month of $47.07/barrel. The average price for ethanol on July 21st in the US was $1.77 a US gallon up from last month at $1.72 a US gallon.

The Canadian dollar noon rate on July 21st was .7969 US up from .7695 US reported here last month. The Bank of Canada’s lending rate increased to 0.75% %.

Ontario

In Ontario the wheat harvest has been progressing nicely in southwestern Ontario, completed almost in Essex and Chatham Kent. Yield and quality has been good, but maybe not as good as 2016. In some areas of the province harvest is just getting started. Excess rainfall in some of these areas may impact the quality.Needless to say, the recent price spike in the wheat futures market came in the nick of time for many Ontario wheat producers.

Parts of Ontario have continued to be inundated with too much rainfall during this growing season, especially in central Ontario. After a wet spring, crops have been progressing and generally are behind last year’s progress to some extent. Corn fungicides are beginning to be applied in southwestern Ontario and many producers are including an insecticide for the control of Western Bean Cutworm. As of July 21st, it’s likely Ontario crops are not as good as last year, but may even still be above average. In Ontario a corn crop more like 1.85 million acres (vs. Stats Can 2.1 M/ac) and yield average of 155 might be in the ballpark. This is smaller than usual and may have ramifications for basis levels going into 2018.

The Ontario corn basis level has actually reached, backed off, and continues to flutter around the import level to processors in the province. However, basis levels at the elevator level are much lower partly because of some vomitoxin concerns, which were present in some areas of the province in 2016. The Canadian dollar almost reaching $.80 and gaining six cents over the last eight weeks has been negative to cash basis levels in Ontario for all three grains.

Old crop corn basis levels are $.60 to $1.01 over the September 2017 corn futures on July 21st across the province. The new crop corn basis varied from .70 to $1.10 over the December 2017 corn futures. The old crop basis levels for soybeans range from $1.95 cents to $2.10 over the August 2017 futures. New crop soybeans range from $1.70-$2.15 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on July 21st were $5.88 for SWW, $5.88 for HRW, $5.85 for SRW and $7.71 for Red Spring Wheat. On July 21st the US replacement price for corn was $5.04/bushel. You can access all of these Ontario grain in the marketing section at Grain Farmers of Ontario.ca.

The Bottom Line

It might be hot and dry in the American corn belt, but it is not 2012. With December corn settling in a trading range between $3.84 and $4.17, the market does not believe the crop is in trouble. This is happening in an atmosphere where in the northern plains in the Dakotas the wheat crop is dead and the corn crop not much farther behind. So we move on into summer watching the market for any clue that may concern. Weather reports in the American corn belt have become the focal point of the market.

What cannot be lost in the recent run up in soybean and wheat futures is the effect of the Canadian dollar on our cash prices. The Canadian dollar as of July 21 is tantalizingly close to an 80 cent US level. This has had a great mitigating effect on Ontario cash crisis through the recent futures rally. On May 2nd the Canadian dollar was fluttering around the 72 sent US level and it is been almost vertical since then. It is the quintessential example of the challenge of marketing Ontario grain. Hedging the foreign exchange risk on basis versus futures moves will continue to challenge Ontario farmers.

We have hot and dry weather forecasts and a sideways trading range for corn. However, the ethanol, gasoline, oil market have been positive for corn prices. The US dollar has also been declining, which has been little bits of bullish stimulus in the corn market. It remains a critical time in the marketing decision-making process. We are at a tipping point on the US production direction for which way this crop goes.

That direction or tipping point may be on August 10th when the USDA releases their first survey-based in field look at crop production. Of course, by this time much of the hot dry weather will have manifested itself across the corn belt. USDA has stuck with their national corn yield 170.1. It is likely by August 10th to be reducing that somewhat, possibly down to 166 or lower. Needless to say, the market by that time will lose some of the interest it has in old crop bearishness and will be focusing more on conditions in the field.

Commodity Specific Comments

Corn

In 2016 the high in December corn was reached on June 18th. However, the high in December corn this year was $4.17 reached on July 11th only to be back down to $3.93 on July 21st. The question is will we get another kick at the can? Will farmers get a chance to see December corn reach back up to $4.50 a bushel like it did in 2016?

The American NOAA put out his three-month outlook for US crop weather in the Midwest and it looks hot and dry. In places like North and South Dakota the corn crop has been devastated like the spring wheat crop. It is a small part of the total US crop, but it is not insignificant.

The December 2017 March 2018 corn futures spread is $-.11 as of July 21st, which is considered neutral. Seasonally the corn futures market tends to trend down thru early October. The December corn contract is currently priced in the upper 41% of the markets past five-year price distribution range.

Soybeans

The soybean futures market has gained about $.80-$.90 in the last three weeks. This is significant especially because we have not hit the critical soybean pod filling stage in August. If the weather continues to look hot and dry into August, there is real potential for soybean prices.

American soybeans are still priced a bit higher on the export market than South American soybeans. For instance, there were will be quite a bit of competition for American soybeans come this fall. So there is still bearishness within the sector. However, August rains are critical for soybean development and we have yet to enter that time frame.

The November 2017 January 2018 soybean futures spread is currently -8.5 cents as of July 21st. This is considered neutral. Seasonally the soybean markets five-year price index tends to trend down through mid-August. The November soybean contract is currently priced in the lower 47% of the last five-year price distribution range.

Wheat

There is no question that spring wheat in the Dakotas has been devastated. However, it is not devastated everywhere, including here in Ontario. There is a premium for high protein spring wheat and that will remain for some time. It is not completely transferred to the wheat market in Chicago, but it has come along in the nick of time for Ontario producers who are enjoying higher prices than a year ago.

$6 wheat off the combine was available in the first part of July for many producers in the deep south west of Ontario. It was also available for producers to forward contract for 2017 and 2018. The crop continues to be harvested in different parts of Ontario. These higher prices may spur more wheat planting this fall.

The Bottom Line (cont.)

As we move ahead the hot and dry weather forecast may have an impact, but keep in mind one good drenching rain wipes all that out and tips the scale back into bearishness. Of course, we are still a few weeks away from the critical pod filling time period in August for soybeans. With the lateness of the crop all of this has been pushed back a bit versus 2016.

Of course much of that opportunity in Ontario has to do with the value of the Canadian dollar, which is trying to break through $.80 US as of July 21st. The health of the Canadian economy has been good and it was partially recognized through the Bank of Canada increase in their overnight lending rate by 25 basis points in July. This was testosterone for the Canadian dollar and negative for our Ontario cash grain prices. Future Bank of Canada rate increases are not out of the question. Of course, many are asking the Canadian dollar can sustain its torrid pace over the last eight weeks?

The weather forecast will continue to dominate going into August. Soybean prices had been somewhat buoyant in July but could become very volatile into August depending on weather forecast. Seasonally soybeans tend to trend down to harvest and the market is fighting against that. A November soybean futures close of $10.22 on July 21st is still very healthy in this bearish market environment.

There are still a myriad of other issues affecting the grain market. We have onerous old crop supplies coming out of South America as well as good crops now being produced in Europe. Interest rate increases may be coming within the United States and Canada. Will there be a black swan event in late July or August to completely wipe the slate clean and send prices in directions we can’t imagine now? That is the unknown, something which is all a possibility; nobody knows where prices will go. It’s important to immerse ourselves in all of these market factors and make the best marketing decision we can. Daily market intelligence will remain key. Standing orders for grain will remain a great tool to capture these opportunities.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for July-August 2017

US and World

It is a sizzling summer in the American heartland with North and South Dakota taking the brunt of a devastating drought, which has impacted spring wheat country. Temperatures across the American Midwest have been triple digit for much of July and it remains to be seen how this will impact corn and soybean crops in the United States. The 30-day forecast for the American Midwest is for a continuance of hot and dry weather.

On July 12th the USDA weighed in with their latest estimates of US crop production. In the report the USDA increased US corn production at 14.255 billion bushels with the US national yield sustained at 170.7 bushels per acre. At the same time the USDA increased soybean production to 4.26 billion bushels. This was based on a five million bushel increase based on expected harvested area at 48 bushels/acre.

The USDA also raised new crop corn ending stocks by 75 million bushels. This was offset to some extent by an increase of 50 million bushels in the feed and residual usage. The 2017/18 corn ending stocks are now estimated at 2.325 billion bushels, which is up 215 million bushels from earlier estimates. The new crop soybean ending stocks were reduced by 40 million bushels to 410 million bushels. This lowered new crop soybean ending stocks by 35 million bushels down to 460 million bushels. All wheat production was raised. However, spring wheat production estimates were slightly higher than pre-report estimates, but down 21% from last year. US Durum production was below pre-report estimates and 45% less than 2016.

On July 21st, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were higher. September corn 2017 futures were at $3.79 a bushel. The July 2017 soybean futures were at $10.09 a bushel. The July 2017 Chicago wheat futures closed at $4.99 a bushel. The Minneapolis September 2017 wheat futures closed at $7.65 a bushel with the September 2018 contract closing at $6.66 a bushel.

The nearby oil futures as of July 21st closed at $45.77/barrel down from the nearby futures of last month of $47.07/barrel. The average price for ethanol on July 21st in the US was $1.77 a US gallon up from last month at $1.72 a US gallon.

The Canadian dollar noon rate on July 21st was .7969 US up from .7695 US reported here last month. The Bank of Canada's lending rate increased to 0.75% %.

Ontario

In Ontario the wheat harvest has been progressing nicely in southwestern Ontario, completed almost in Essex and Chatham Kent. Yield and quality has been good, but maybe not as good as 2016. In some areas of the province harvest is just getting started. Excess rainfall in some of these areas may impact the quality.Needless to say, the recent price spike in the wheat futures market came in the nick of time for many Ontario wheat producers.

Parts of Ontario have continued to be inundated with too much rainfall during this growing season, especially in central Ontario. After a wet spring, crops have been progressing and generally are behind last year's progress to some extent. Corn fungicides are beginning to be applied in southwestern Ontario and many producers are including an insecticide for the control of Western Bean Cutworm. As of July 21st, it's likely Ontario crops are not as good as last year, but may even still be above average. In Ontario a corn crop more like 1.85 million acres (vs. Stats Can 2.1 M/ac) and yield average of 155 might be in the ballpark. This is smaller than usual and may have ramifications for basis levels going into 2018.

The Ontario corn basis level has actually reached, backed off, and continues to flutter around the import level to processors in the province. However, basis levels at the elevator level are much lower partly because of some vomitoxin concerns, which were present in some areas of the province in 2016. The Canadian dollar almost reaching $.80 and gaining six cents over the last eight weeks has been negative to cash basis levels in Ontario for all three grains.

Old crop corn basis levels are $.60 to $1.01 over the September 2017 corn futures on July 21st across the province. The new crop corn basis varied from .70 to $1.10 over the December 2017 corn futures. The old crop basis levels for soybeans range from $1.95 cents to $2.10 over the August 2017 futures. New crop soybeans range from $1.70-$2.15 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on July 21st were $5.88 for SWW, $5.88 for HRW, $5.85 for SRW and $7.71 for Red Spring Wheat. On July 21st the US replacement price for corn was $5.04/bushel. You can access all of these Ontario grain in the marketing section at Grain Farmers of Ontario.ca.

The Bottom Line

It might be hot and dry in the American corn belt, but it is not 2012. With December corn settling in a trading range between $3.84 and $4.17, the market does not believe the crop is in trouble. This is happening in an atmosphere where in the northern plains in the Dakotas the wheat crop is dead and the corn crop not much farther behind. So we move on into summer watching the market for any clue that may concern. Weather reports in the American corn belt have become the focal point of the market.

What cannot be lost in the recent run up in soybean and wheat futures is the effect of the Canadian dollar on our cash prices. The Canadian dollar as of July 21 is tantalizingly close to an 80 cent US level. This has had a great mitigating effect on Ontario cash crisis through the recent futures rally. On May 2nd the Canadian dollar was fluttering around the 72 sent US level and it is been almost vertical since then. It is the quintessential example of the challenge of marketing Ontario grain. Hedging the foreign exchange risk on basis versus futures moves will continue to challenge Ontario farmers.

We have hot and dry weather forecasts and a sideways trading range for corn. However, the ethanol, gasoline, oil market have been positive for corn prices. The US dollar has also been declining, which has been little bits of bullish stimulus in the corn market. It remains a critical time in the marketing decision-making process. We are at a tipping point on the US production direction for which way this crop goes.

That direction or tipping point may be on August 10th when the USDA releases their first survey-based in field look at crop production. Of course, by this time much of the hot dry weather will have manifested itself across the corn belt. USDA has stuck with their national corn yield 170.1. It is likely by August 10th to be reducing that somewhat, possibly down to 166 or lower. Needless to say, the market by that time will lose some of the interest it has in old crop bearishness and will be focusing more on conditions in the field.

Commodity Specific Comments

Corn

In 2016 the high in December corn was reached on June 18th. However, the high in December corn this year was $4.17 reached on July 11th only to be back down to $3.93 on July 21st. The question is will we get another kick at the can? Will farmers get a chance to see December corn reach back up to $4.50 a bushel like it did in 2016?

The American NOAA put out his three-month outlook for US crop weather in the Midwest and it looks hot and dry. In places like North and South Dakota the corn crop has been devastated like the spring wheat crop. It is a small part of the total US crop, but it is not insignificant.

The December 2017 March 2018 corn futures spread is $-.11 as of July 21st, which is considered neutral. Seasonally the corn futures market tends to trend down thru early October. The December corn contract is currently priced in the upper 41% of the markets past five-year price distribution range.

Soybeans

The soybean futures market has gained about $.80-$.90 in the last three weeks. This is significant especially because we have not hit the critical soybean pod filling stage in August. If the weather continues to look hot and dry into August, there is real potential for soybean prices.

American soybeans are still priced a bit higher on the export market than South American soybeans. For instance, there were will be quite a bit of competition for American soybeans come this fall. So there is still bearishness within the sector. However, August rains are critical for soybean development and we have yet to enter that time frame.

The November 2017 January 2018 soybean futures spread is currently -8.5 cents as of July 21st. This is considered neutral. Seasonally the soybean markets five-year price index tends to trend down through mid-August. The November soybean contract is currently priced in the lower 47% of the last five-year price distribution range.

Wheat

There is no question that spring wheat in the Dakotas has been devastated. However, it is not devastated everywhere, including here in Ontario. There is a premium for high protein spring wheat and that will remain for some time. It is not completely transferred to the wheat market in Chicago, but it has come along in the nick of time for Ontario producers who are enjoying higher prices than a year ago.

$6 wheat off the combine was available in the first part of July for many producers in the deep south west of Ontario. It was also available for producers to forward contract for 2017 and 2018. The crop continues to be harvested in different parts of Ontario. These higher prices may spur more wheat planting this fall.

The Bottom Line (cont.)

As we move ahead the hot and dry weather forecast may have an impact, but keep in mind one good drenching rain wipes all that out and tips the scale back into bearishness. Of course, we are still a few weeks away from the critical pod filling time period in August for soybeans. With the lateness of the crop all of this has been pushed back a bit versus 2016.

Of course much of that opportunity in Ontario has to do with the value of the Canadian dollar, which is trying to break through $.80 US as of July 21st. The health of the Canadian economy has been good and it was partially recognized through the Bank of Canada increase in their overnight lending rate by 25 basis points in July. This was testosterone for the Canadian dollar and negative for our Ontario cash grain prices. Future Bank of Canada rate increases are not out of the question. Of course, many are asking the Canadian dollar can sustain its torrid pace over the last eight weeks?

The weather forecast will continue to dominate going into August. Soybean prices had been somewhat buoyant in July but could become very volatile into August depending on weather forecast. Seasonally soybeans tend to trend down to harvest and the market is fighting against that. A November soybean futures close of $10.22 on July 21st is still very healthy in this bearish market environment.

There are still a myriad of other issues affecting the grain market. We have onerous old crop supplies coming out of South America as well as good crops now being produced in Europe. Interest rate increases may be coming within the United States and Canada. Will there be a black swan event in late July or August to completely wipe the slate clean and send prices in directions we can't imagine now? That is the unknown, something which is all a possibility; nobody knows where prices will go. It's important to immerse ourselves in all of these market factors and make the best marketing decision we can. Daily market intelligence will remain key. Standing orders for grain will remain a great tool to capture these opportunities.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Special Post June 30 USDA Market Trends Report

US and the World

It can be an explosive time in the grain markets. Across the greater US corn belt corn, soybeans and wheat are showing great variability as we head into July. Historically, the July 4th weekend has always served as a market flashpoint as crops start to develop quickly and summer weather makes its impact. The June 30th USDA planted acreage estimates and quarterly stocks report also impact the market at this critical time. In 2017, we are here again and once again the USDA did provide some surprises for market action.

In their June 30th USDA report many market observers were musing that US soybean acres may overtake US corn acres planted. However, that was not the case as USDA predicted US corn planting at 90.89 million acres and US soybean planting coming in at 89.51 million acres. US corn acreage is down 3.11 million acres from last year. The US soybean acreage was approximately 440,000 acres below pre report estimates, but still 7% higher than last year. All wheat acreage came in at approximately 45.66 million acres, which was the lowest since the USDA began keeping records in 1919.

The June 30th USDA report also gives important quarterly stocks information on old crop. The USDA pegged the June 1st quarterly corn stocks at 5.225 billion bushels, which was higher than expected, 514 million bushels higher than a year ago. However, the second quarter disappearance was 3.4 billion bushels, which was up 290 million bushels from the same time last year. The soybean quarterly ending stocks totaled 963 million bushels, which was below trade expectations, but up 11% from last year. All wheat stocks were projected that 192 million bushels, which was 3% less than a year ago.

On July 3rd, corn, soybeans wheat futures were higher than the last Market Trends report. September corn 2017 futures were at $3.88 a bushel. The July 2017 soybean futures were at $9.70 a bushel. The July 2017 Chicago wheat futures closed at $5.45 a bushel. The Minneapolis September 2017 wheat futures closed at $8.16 a bushel with the September 2018 contract closing at $6.77 a bushel.

The nearby oil futures as of July 3rd closed at $47.07/barrel up from the nearby futures of last month of $45.83/barrel. The average price for ethanol on July 3rd in the US was $1.72 a US gallon down from last month at $1.73 a US gallon.

The Canadian dollar noon rate on July 4th was .7695 US up from .7433 US reported here last month. The Bank of Canada’s lending rate remained at 0.50 %. That may change July 12th with an anticipated rate increase.

Ontario

Statistics Canada released their estimates of Ontario soybean and corn acreage June 29th. This year they project that Ontario farmers planted 3.1 million acres of soybeans, which is up 13.5% from last year. Statistics Canada also estimated that Ontario farmers planted 2.1 million acres of corn in 2017 an increase of 4.7% from last year. In Québec, the soybean area increased 22.5% from last year to 983,500 acres in 2017. Grain corn acreage also increased in Québec to 939,000 acres, which represents an increase of 5.6% over last year. Interestingly, Western Canadian soybean production continues to grow. Saskatchewan soybean acreage was pegged at 850,000 acres, a 254% increase over last year.

The Canadian dollar has been robust over the last few weeks currently fluttering around the $.77 cent level US. This has softened basis for soybeans and wheat in Ontario. The corn basis has also softened across the province except for Eastern Ontario where basis remains higher. The crop is variable across the province, as heavy rains have inundated many areas especially east of London, Ontario to the Québec border. However, other areas in the deep South West of Ontario have seen dry conditions. Projecting yield at this point might be premature especially considering what happened last year. Many producers would certainly welcome more heat and drier conditions.

The wheat crop continues its journey toward harvest with some fields partially harvested as of July 3rd in Essex County. Heads are turning under and this harvest will likely ramp up in the next few days and weeks in southwestern Ontario. Although the wheat basis has been under pressure, increased wheat futures prices have arrived in the nick of time for many Ontario producers.

Old crop corn basis levels are $.65 to $1.11 over the September 2017 corn futures on July 3rd across the province. The new crop corn basis varied from .75 to $1.13 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.10 cents to $2.40 over the July 2017 futures. New crop soybeans range from $1.85-$2.20 over the November 2017 futures level. The GFO cash wheat prices for delivery to a terminal on July 3rd were $6.88 for SWW, $6.82 for HRW, $6.82 for SRW and $9.11 for Red Spring Wheat. On July 3rd the US replacement price for corn was $5.25/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

The Bottom Line

The June 30th USDA report did live up to its billing as a major market flashpoint. The major thing that it did was dispelling the market psychology of soybean acres outstripping projected corn acres. Still, soybean acres are at record levels, but not as much as expected and summer weather especially in August will largely determine soybean yields. Also too, soybean old crops stocks were less than expected, helping to surge soybean prices higher by 39 cents on June 30th.

The June 30 USDA report gave the market a bullish turn, but it was quickly overrun by the hot and dry weather in the northwestern US plains, where the wheat crop is burning up. Market action has been positive going into Monday, July 3rd with both corn and soybeans going up in concert with wheat. The extended forecast is dry for the Midwest and this is putting together a scenario for higher prices based simply on weather.

It is happening despite some bearish news for corn coming out of the USDA report, which had higher quarterly stocks than expected. This would project an ending stocks figure for old crop corn at 2.387 billion bushels and the ending stocks to use ratio would increase to 16.4%.

The June 30 USDA report may have caught traders off guard with a lower soybean acreage number, but hot dry weather has magnified it. For instance, on July 3 soybeans reach their highest close in three months. Noncommercial traders actually had their largest net short position in soybeans just previous to the USDA report. They were caught and much short covering was taking place. A weather market can do that, proof that nobody really knows where price will go.

Commodity Specific Commentary

Corn

We are headed into a critical time for corn in front of the critical pollination period for much of the US corn belt. Key is US yield, which USDA is still projecting 170.7 bushels per acre. The crop has had difficult conditions especially in the eastern corn belt this year and there are many doubters whether that yield is there. However, it is probably still too premature to say.

The run-up in the wheat market may have an effect on corn prices going forward. In the short term, wheat is likely to come out of feed rations helping put stability in corn prices. However, the USDA quarterly stocks were negative for corn, something that should not be forgot even if weather turns hot and dry.

The July 2017 September 2017 corn futures spread is -.105 cents, which is considered bearish. Seasonally, the corn market’s five-year weekly index shows the market trends down thru early October. The July contract is currently priced in the lower 36% of the market’s five-year price distribution range.

Soybeans

The market psychology may have changed regarding soybean acres, but 2017 acres are still at a record level. If we come in at 48-bushels/per acre, ending stocks will still be approximately 445 million bushels, a still burdensome level. The ending stocks to use ratio may be at just over 10%. Needless to say, as we turn the July 4th weekend, the script is not yet written.

The soybean demand picture remains very strong, both for new crop and old crop. In fact, the Q1-Q2 soybean stocks disappearance has been at record levels. Despite the big supplies of soybeans it is only managing to keep pace of world demand dynamics. August rains usually determines soybean yield. We are getting close to that everyday.

The July 2017 August 2017 soybean futures spread is currently at -.0475 cents as of June 30th. This is considered neutral. Seasonally, the soybean markets five-year seasonal index shows the old crop market tends to trend down thru the middle of August. The July contract is currently in the lower 20% of the last five-year price distribution range.

Wheat

Minneapolis wheat futures simply have been on fire. The drought in Dakotas has accentuated an already short situation created by the lowest wheat acres since 1919. The near vertical rise in these wheat futures has been slow to translate to Chicago until very recently. Prices for wheat tend to top at harvest time in short crop years. Farmers welcome the wheat futures price rise. Wheat will be buying acres this fall.

In Ontario the wheat crop is set to be harvested with some activity already taking place in early July in Essex County. Yield expectations have been tempered this spring, but hopefully that will not be the case. Heavy rains and above normal rainfall in many parts of the province may still impact that yield picture.

The Bottom Line (Cont’d)

The run-up in futures prices has been significant for Canadian cash prices, but with the Canadian dollar gaining five cents US since May 4th, cash prices have not returned to levels seen only a few weeks ago. This is the Canadian pricing conundrum and always our challenge. How do we market our grain in a market environment when the Canadian dollar and futures prices are moving in opposite directions? With the Bank of Canada expected to raise interest rates on July 12th that should be positive for the loonie’s value.

Of course, the loonie’s variability will affect our Ontario basis levels especially for wheat and soybeans. At the present time old crop corn end-users have an ample supply of Ontario corn. Basis levels have dropped into July. Summer weather will impact the new crop basis levels going forward. If the 2.1 million acres predicted by Statistics Canada gets impacted by the same hot and dry present now in the northwestern US plains, look for basis changes.

Looking ahead, not only is Ontario yield important, but also projected USDA yield estimates, which will be announced in mid July and August. Will the dry weather in US wheat country take down US national corn and soybean yield? Or will unexpected rainfall simply make it all a mute point? Summer price movement can redefine volatility. The wheat market is a very good example of that.

It is a critical time in our marketing horizon. In fact, you could argue the time preceding and immediately after the June 30th USDA report and July 4th weekend is the most critical marketing period for corn and soybeans every year. The June 30th USDA changed the narrative. It provided many marketing opportunities not seen in weeks just previous. The incubation of a weather market in US wheat country is doing the same thing. For the Ontario grain farmer, standing marketing orders can help capture these opportunities. It will be an interesting summer. There will be many marketing opportunities ahead.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for June-July 2017

US and the World

It is a critical time of the year for grain markets. Across the US corn belt as well as Ontario, farmers have been planting since mid April. It continues. As of May 28th 91% of US corn has been planted and 67% of US soybeans. There are wide variations on this theme as the Eastern and Southern corn belt has seen more of its share of wet weather causing many planting delays. As we move into late June it is a time where the US crop is setting up to be made and marketing decisions for that crop are accentuated by market volatility. The June 9th USDA report gave us another indication of the supply of grain in the US and around the world.

On June 9th USDA left US corn and soybean production unchanged from earlier reports. However, they increased both the old crop and new crop soybean ending stocks both domestically and around the world. There was a 1.91 million bushel reduction in soybean crush, which resulted in old crop ending stocks coming in at 450 million bushels. New crop soybeans ending stocks were also bumped up to 495 million bushels. The USDA in a somewhat surprising move increased total wheat production to 1.824 billion bushels, which was up 3.8 million bushels from last month’s report.

Corn production is still pegged at 14.065 billion bushels with new crop ending stocks remaining at 2.11 billion bushels. The global corn production for 2017/2018 is projected at 1.03186 MMT, which was down slightly from last month’s report. The Brazilian corn crop was increased to 97 MMT and their soybean crop boosted to 114.0 MMT.

On June 11th, corn and wheat futures were higher than the last Market Trends report. Soybeans futures were slightly lower. July corn 2017 futures were at $3.87 a bushel. The July 2017 soybean futures were at $9.41 a bushel. The July 2017 Chicago wheat futures closed at $4.45 a bushel. The Minneapolis July 2017 wheat futures closed at $6.06 a bushel with the September 2017 contract closing at $6.16 a bushel.

The nearby oil futures as of June 9th closed at $45.83/barrel down from the nearby futures of last month of $50.33/barrel. The average price for ethanol on June 9th in the US was $1.73 a US gallon up from last month at $1.70 a US gallon.

The Canadian dollar noon rate on June 9th was .7433 US up from 7383 US reported here last month. The Bank of Canada’s lending rate remained at 0.50.

Ontario

In Ontario the corn crop has mostly been planted as of June 10th. In some areas of the province where rain delayed planting some June corn acres were put in. About 80% of the province’s soybeans have also been planted as of June 10th. There are regional variations on this theme depending where rain has inundated planting. For instance there has been replanting in Lambton, Chatham Kent, Essex, Niagara and Haldimand Counties, where soybeans became entombed underneath hard soil crusts.

Statistics Canada had predicted 3 million acres of soybeans and 2.2 million acres of corn to be planted in Ontario the spring. However, it is likely that acres were shifted into soybeans based on the tough planting conditions in late April and early May. The 2.2 million acres of corn seemed optimistic at the time and is likely much closer to 2 million acres or below. The actual Ontario corn acres number will go a long way in determining corn basis levels in 2017 in 2018. With the crop off to a rough start in some parts of the province, it is unlikely to yield as well as 2016. New crop corn basis levels in Ontario partially reflect this. As we move ahead, Ontario weather will further refine this measurement.

The Ontario wheat crop continues its journey toward harvest time with T3 fungicide applications taking place across the province. There have also been reports of armyworms and the thresholds for control are widely published. The Canadian dollar at 74.33 US cents continues to be a stimulus for wheat prices.

Old crop corn basis levels are $.65 to $1.20 over the July 2017 corn futures on June 9th across the province. The new crop corn basis varied from .95 to $1.25 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.65 cents to $2.80 over the July 2017 futures. New crop soybeans range from $2.25-$2.70 over the November 2017 futures level. The GFO cash wheat prices for delivery to a terminal on June 9th were $5.80 for SWW, $5.73 for HRW, $5.73 for SRW and $6.81 for Red Spring Wheat. On June 9th the US replacement price for corn was $5.59/bushel. You can access all of these Ontario grain.

The Bottom Line

In terms of timing, June can be a very key month with regard to our grain marketing. For instance, last year on June 18th corn prices hit their highs for the year. Up until then the market was unsure what the crop would be like and had added risk premium to both futures and cash prices. Is 2017 shaping up like 2016 with regard to marketing grain? Of course, nobody knows, but there are many similarities between grain stocks and conditions this year versus last year.

We are now in a weather market for corn and increasingly for soybeans. Mid-June, the July 4 weekend in the United States and pollination weather in mid July represent a critical time for US corn development. The market over the next few weeks will be measuring this. Capturing the trend in market psychology will be very important as will daily market intelligence.

The June 30th USDA opinion about actual planted acres will be of critical importance. There has been planting delays in many replants throughout the United States corn belt. The March estimate of 89.5 million soybean acres is a record and we must be cognizant that it might grow bigger. Needless to say, both the corn acres number and the soybean acres number announced on June 30th will likely initiate a market flashpoint especially if there is a surprise.

It goes without saying that any extreme summer weather will impact this 2017 crop price scenario. Every assumption about currencies, planting conditions, ethanol demand, exports, crush needs to be weighed against the phrase “hot and dry”. Simply put, if that phrase gets into the 2017 market vernacular, all bets are off, until it rains.

Commodity Specific Comments

Corn

The corn market is entering a very critical time very similar to the last two years. For instance, last year the corn market topped out on June 18th. It was a time with ample old crop supplies but much uncertainty in new crop fields. When the rains came the market slid down into its lower to sideways range for the last 10 months. The same conditions exist in early June 2017 and producers should be cognizant of that.

The market seems to have absorbed any news about tough planting conditions in the US mid west. However, the market always seems to get much more excited about “hot and dry” conditions. As we move into the middle of June corn will remain in a weather market until the heat breaks or the rains comes. Standing orders for new crop corn will be helpful within this anticipated volatile market.

The July 2017 September 2017 corn futures spread is currently -8 cents, which is considered neutral. The July corn contract is currently priced in the lower 38% of the last five-year price distribution range. Seasonally, the corn market tends to trend down through August.

Soybeans

Soybeans have bounced off their Brazil harvest lows. Prices have been under bearish pressure because of the big US crop last year as well as the record Brazilian crop. Still, demand is very strong to keep price at the $9.40 level.

This is happening in an environment, where the US crop is yet to be planted totally. There is much risk ahead especially with soybeans, as August rains are so critical. This is happening in a price environment where global soybean new crop beginning stocks are rising.

The July 2017 August 2017 soybean futures spread is -3 1/2 cent as of June 9th. The July contract is currently priced in the lower 15% of the last five-year price distribution range. Seasonally the soybean markets five-year index shows soybeans tend to trend up through late June.

Wheat

Wheat continues to suffer under its bearish market conditions, but has shown some resilience over the last few weeks. That has been especially so in hard spring wheat, which has been rallying on the Minneapolis market. There is a premium for high-protein spring wheat and that is likely to continue into this crop year. Dry weather in the northern Plains and in Western Canada is helping this futures price rise.

In Ontario prices have continued to be stimulated by the low Canadian dollar and any futures rise will be accentuated. Prices now are higher than they were a year ago at harvest time. The crop continues on its road to harvest with fungicide applications taking place at different intervals across the province.

The Bottom Line (cont.)

There is much uncertainty yet to be priced in the market. However, we cannot negate the rather large ending stocks for grain that are being forecast now, corn at 2.11 billion bushels and soybeans at 495 million bushels. These stocks are onerous and if we get summer rains and benign weather they will likely keep prices down. However, it is all based on normal yields and March acreage projections. So we need to balance all of these expectations as we look ahead.

The US dollar has been hovering in the 96 and $.97 range on the index, which is bullish for grains futures. However, it is an uneven time for American influence in the world as the Trump administration forges its own way. The Brazilian Real and Canadian dollar have been gyrating off those values. It is important to understand how values move against each other (usually in inverse from the US dollar) to foster greater clues on grain price direction.

Of course, “hot and dry” or lack of that phrase at this time of year will define the grain marketing narrative. It will be important to work your marketing plan in concert with your strategy regarding Canadian dollar direction. The Canadian dollar has been fluttering between 72 and $.74 US lately. It continues to add stimulus to Canadian grain prices, especially soybeans and wheat.

It’s time to really focus those marketing plans. Flashpoints to come will be the June 30th USDA reports releasing a plethora of information with regard to acres, stocks and yields, which could be explosive for prices. The July 4th weekend, which represents a three-day holiday from market action sometimes, can actually be pivotal for grain market direction once markets open up. Key for Ontario producers is to take advantage of the opportunity, where they are comfortable and profitable marketing their grain. Risk management never grows old. Daily market intelligence will remain a must.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for May-June 2017

US and the World

It is go time, that time of year when farmers across the great North American Corn Belt are busy planting their crops. Weather has been a detriment across much of the US Corn Belt as wet weather has farmers out of the fields in the southern, central and eastern US. With the USDA projecting a big soybean acreage this year and a reduction of corn acreage, weather will be the final determinate. For the week ending on May 14, 2017, the USDA had begged US corn planting at 71% and US soybeans planted at 32% just slightly behind normal.

On May 10th the USDA released its latest WASDE (World Agricultural Supply and Demand Estimates) report. The May report is always the official first look at new crop ending stocks. In this report the USDA set 2017/18 new crop corn ending stocks at 2.11 billion bushels, which was consistent with pre-report estimates. The USDA also maintained its current production number for this year at 14.065 billion bushels. Old crop ending stocks were pegged at 2.295 billion bushels.

The USDA projected new crop 2017/18 soybean-ending stocks at 480 million bushels, which was 88 million bushels less than what it been projected. The USDA maintained the 2017/18-soybean production at 4.255 billion bushels. The old crop soybean ending stocks were reduced to 435 million bushels, which were down 10 million bushels from their April report. The USDA also projected new crop wheat production at 1.25 billion bushels, which is down 25% from last year. However, this estimate did not factor in the recent heavy snow and cold weather in the US Southwest plains.

On May 19th, corn and wheat futures were higher than the last Market Trends report. Soybeans futures were slightly higher. July corn 2017 futures were at $3.72 a bushel. The July 2017 soybean futures were at $9.53 a bushel. The July 2017 Chicago wheat futures closed at $4.35 a bushel. The Minneapolis July 2017 wheat futures closed at $5.55 a bushel with the September 2017 contract closing at $5.62 a bushel.

The nearby oil futures as of May 19th closed at $50.33/barrel down from the nearby futures of last month of $49.62/barrel. The average price for ethanol on May 19th in the US was $1.70 a US gallon up from last month at $1.82 a US gallon.

The Canadian dollar noon rate on May 19th was .7383 US down from the .7404 US reported here last month. The Bank of Canada’s lending rate remained at 0.50.

Ontario

In Ontario planting continues after an uneven start to the season. Wet weather and cold soils limited planting progress in many parts of the province in late April and early May. However, in mid May the planting window opened up across Ontario with many farmers hitting the field. Generally speaking, there was some early planting in the deep south west of Ontario, but the season is later throughout most of the rest of the province. For instance in the “far east”, planting season has mostly been delayed. Needless to say, even though there has been a delay in planting it is far from concerning. Of course, much will depend on weather in late May to get this crop into the ground.

With the delay in corn planting across some areas in Ontario, the new crop soybean basis has been responsive to this concern. As always, the Eastern Ontario corn basis is usually higher than the rest of the province and this is telling with some Eastern Ontario bids up to a $1.20 over the December versus $.95 in Southwestern Ontario. The old crop bids for corn are somewhat similar, but basis has really not moved significantly in a month. The Canadian dollar in the 72-74 cents range has been a continued stimulus.

Of course much of this concern about new crop corn basis comes from the eventual crop mix within Ontario. Expectations now are for a crop similar to last year with a Statistics Canada estimate of 2.2 million acres. However, as of May 19th, that is all theory now especially with some planters halted. This may result in risk premium included in the new crop basis as we go ahead.

Old crop corn basis levels are $.50 to $1.16 over the July 2017 corn futures on May 19th across the province. The new crop corn basis varied from .95 to $1.20 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.75 cents to $2.90 over the July 2017 futures. New crop soybeans range from $2.40-$2.80 over the November 2017 futures level. The GFO cash wheat prices for delivery to a terminal on May 19th were $4.94 for SWW, $4.94 for HRW, $4.94 for SRW and $5.82 for Red Spring Wheat. On May 19th the US replacement price for corn was $5.45/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

We are kind of in the “grain pricing twilight” zone as we head into mid June. History tells us that some of the best marketing opportunities are often within this time period when the crop is being planted and made in the United States. If you believe in that history this is clearly the time to consider placing new crop standing orders. Risk management can sometimes be a measured thing. For farmers marketing grain, this would mean hedging over a timeline, where critical crop progress is being defined. There are no guarantees; there is much price risk ahead.

The one-day black swan event in Brazil caused soybean prices to tank $.30 in one day. It also precipitated the most widespread domestic Brazil soybean selling in many years. When Brazil President Michel Temer was accused of taking bribes concerning the Brazilian meat packer JBS, supposedly caught on audiotape, the Brazilian currency tanked 8% in one day. In a world awash in grain, it was the consummate selling signal. For Ontario producers watching futures prices, it was an example of how a Black Swan event can shake market prices.

Of course it’s hard or nearly impossible to predict any black swan event affecting grain futures prices. However, uneven weather is getting the US crop off to a less than stellar start. Trend line yields in corn now seem more likely than above average. Tough planting conditions do make a difference. However, the phrase “hot and dry” usually trumps tough planting conditions. We are not there yet and producers will need to measure if that phrase becomes a marketing factor.

Lost within market action over the last several weeks has being the decrease in the value of the US dollar. From a high of approximately 103.5 at the start of 2017, it has dropped to 97.03 on the US index as of May 19th. This recent drop can be considered a stimulus for grain futures prices and may possibly create a short-term stimulus for a market rally. When the world’s default currency gets cheaper, simply put, it’s good for agricultural commodity prices.

Commodity Specific Comments

Corn

The corn market continues in a sideways range with lots of supply around the world. For instance the Safhrina corn crop is now being harvested in northern Brazil and much of this corn from Argentina and Brazil will be coming onto the market. This factor along with large supplies of American old crop corn is keeping the July futures prices at bay.

It cannot be ignored some of the weather problems going on in the United States. For instance Illinois corn is rated 42% good to excellent as of May 14th, but this is down from 72% last year. It’s still early, but trend line yield in the United States may be difficult to attain based on these early weather related new crop production scenarios.

The July 2017 September 2017 corn futures spread is -7.25 cents as of May 19th, which is considered neutral. The July corn futures contract is currently priced in the lower 37% of the five-year price distribution range. Seasonally over the last five years the July corn contract tends to trend down through August.

Soybeans

It is difficult to paint a bullish scenario for soybeans especially with the large supplies currently on world markets. The scandal in Brazil, which precipitated an 8% decrease in the Brazilian currency led to one of the largest selling days in Brazil over the last few years. It showed that currencies really matter especially in such a competitive world for agricultural commodities.

The upside to soybean prices is difficult to see especially in futures. However, seasonally the weather will impact soybeans into August, while the corn window is much shorter. The USDA in their May 19th report showed ending stocks very much the same next year as it is this year and prices to be similar or lower.

The July 2017 August 2017 soybean futures spread is -1.25 cents as of May 19th, which is considered bullish. The soybean futures market over the last five years seasonally shows the old crop tends to trend up through late June. The July soybean futures contract is currently priced in the lower 21% of the last five-year price distribution range.

Wheat

Wheat is currently being harvested in Texas and other parts of the southern US with lower yields and quality issues. Also too, with rain inundating much of the southern Midwest quality issues will surely be a concern affecting wheat futures. However, in Europe and the Black Sea region, which produces 50% of the world’s wheat, conditions are good. The funds are short wheat and even with 25% less American production expected prices have been range bound between $4.20 and $4.40 per bushel.

In Ontario amid the raindrops and tough soil conditions producers have managed to get their wheat side dressed and sprayed with fungicide. Much of Ontario wheat starting in southwestern Ontario will be heading out within the next 2 to 3 weeks. Weather during this critical time for wheat will surely impact the yield going into summer. The Canadian dollar continues to be a stimulus for Ontario cash wheat prices.

The Bottom Line (cont.)

The Canadian dollar continues to be the stimulus for Ontario cash prices. On May 5th it actually traded in the $.72 range in comparison to January 31st when it was trading in the $.77 range. Like the Brazilian Real and the US dollar, currencies matter here too. It is always difficult to know where our loonie is headed although it is usually inverse to US dollar moves. Key factors to watch are the Bank of Canada interest rate announcements along with interest rate movement at the US Federal Reserve.

As we look ahead from a pricing perspective crop progress in the United States is important. It is uneven now, but we’ve seen that so much in the past. The American propensity to produce grain is vast. In Ontario at the same time crop conditions may have an impact on future new crop basis values. In this critical time period daily market intelligence supplemented with standing marketing orders can be very helpful to capture market opportunities.

Clearly, grain stocks are still onerous based on the May 10th USDA report. The new crop ending stocks of 480 million bushels of soybeans and 2.110 billion bushels of corn are projected. However, ethanol demand at 5.5 billion bushels is a record and total corn demand of 14.645 billion bushels is too. Despite the onerous surpluses and projected surpluses, a tenuous argument could be made there is a fine balance between supply and demand. Any upset in this fine balance to the supply side will send prices higher.

Of course geopolitical events can affect all of this moving forward. We saw that to some extent with the Brazilian scandal and its effect on soybean prices. The Trump administration continues to challenge present trade agreements. North Korea remains a problem. The US Federal Reserve will likely raise interest rates again soon. There are a myriad of market factors aside from the weather and supply and demand that may affect our prices. The challenge for Ontario farmers as they plant their crops is to consider all of these marketing factors. Market your grain where you are comfortable and profitable. There will be profitable marketing opportunities ahead.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Market Trends Report for April-May 2017

US and World

It is that time. In the United States and to a very limited amount in Ontario planters are rolling across farm country. With the bearish tone set in the market coming off the March 31st USDA projected plantings report, there is much interest in just how many acres American farmers will plant in 2017. For the week ending April 16, 2017, American farmers had approximately 6% of the US corn crop planted compared to 12% last year. It is early yet and weather has not cooperated throughout the American Midwest. As we move ahead, those weather concerns will define the crop mix and ultimately market prices.

On April 11th the USDA released its latest world agricultural supply and demand estimates. This report usually is a smaller encore to the much larger report on March 31st. In the report, the USDA actually raised global soybean production for 2016/17 by 5.18 MMTs and increased global soybean ending stocks by 4.59 MMT. The USDA also raised US soybean-ending stocks for 2016/17 by 10 million bushels to 445 million bushels. Global corn production was also raised 4.52 MMTs, partly because of increase crop yields in Brazil and Argentina. Not to be outdone, global wheat stocks for 2016/17 were raised another 2.32 MMT to just under 223 MMT. The US domestic wheat stocks were raised another 30 million bushels to 1.159 billion bushels, close to a 30-year high.

The USDA actually raised domestic ethanol use by 50 million bushels, but this was offset by a decrease in feed demand by the same amount. The USDA also fell in line with many other private estimates boosting Brazilian soybean production to 111 MMT. Argentinian soybean production was boosted by half a million bushels. The report substantiated many of the bearish assumptions within the market. Grain futures prices have settled to possible “pre-planting lows”. Spring weather will surely redefine these numbers.

On April 23rd, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were slightly higher. May corn 2017 futures were at $3.57 a bushel. The May 2017 soybean futures were at $9.51 a bushel. The May 2017 Chicago wheat futures closed at $4.05 a bushel. The Minneapolis May 2017 wheat futures closed at $5.26 a bushel with the September 2017 contract closing at $5.42 a bushel.

The nearby oil futures as of April 23rd closed at $49.62/barrel down from the nearby futures of last month of $50.60/barrel. The average price for ethanol on April 23rd in the US was $1.82 a US gallon up from last month at $1.74 a US gallon.

The Canadian dollar noon rate on April 23rd was .7404 US down from the .7500 US reported here last month. The Bank of Canada’s lending rate remained at 0.50.

Ontario

In Ontario there is some corn planted in Chatham Kent and in selected fields throughout the rest of the province. However, as of April 23rd this is somewhat of an outlier as most production areas have been too cold or wet to get anything planted. In fact, wet weather across the province in mid April has slowed planting progress. However, rainfall has been variable and Ontario planting will commence in earnest as soon as fields dry up.

The Ontario crop mix will be defined as we get into May. Statistics Canada weighed in with their estimates in March predicting 2.2 million corn acres and 3 million soybean acres. Québec production was pegged at 976,100 acres for corn and 926,000 for soybeans. The Ontario numbers seem to be high especially for corn. The 2 million mark is always significant in Ontario as any production less than that with a less than average crop will increase corn basis levels substantially the following year.

In Ontario there is still much old crop corn to be sold and end users needs seem to be met looking forward into September 2017. Basis levels have been raised to some extent with the Eastern Ontario corn basis level much higher, which reflects their much tighter supply/demand situation. Quality concerns in some areas of the province continue to challenge. Wheat substituting for Ontario corn in feed rations is in the mix.

Old crop corn basis levels are $.55 to $1.19 over the May 2017 corn futures on April 23rd across the province. The new crop corn basis varied from .95 to $1.20 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.60 cents to $2.75 over the May 2017 futures. New crop soybeans range from $2.35-$2.73 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on April 23rd were $4.73 for SWW, $4.73 for HRW, $4.73 for SRW and $5.62 for Red Spring Wheat. On Arpil 23rd the US replacement price for corn was $5.15/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

It is a volatile time for grain futures prices despite the general bearish tone in the market and the sideways movement especially in the corn market over the last few weeks. It is that way because spring planting and spring weather always represent uncertainty and with that usually selling opportunities for grains. 2017 is no different than other years other than the onerous grain stocks, which have impacted prices over the last several months.

Part of that impact on futures prices is coming from South America. With a 111 MMT soybean crop coming out of Brazil, finally backed up by USDA soybean futures prices have taken the brunt of that impact. However, the Brazil corn crop is doing well with adequate moisture. In Argentina, corn is being harvested, 25% as of April 23rd. All of these supply factors are weighing on prices. We are in the time frame now of South American post harvest lows similar to October and November in North America.

Demand for our grain is still at record highs, but supply has done a very good job of keeping up at outstripping that demand. For instance, it is rare that Canada gets mentioned in the soybean market. However, with the growth potential of soybeans in Western Canada, Statistics Canada estimated there would be a 27% increase in Canadian soybean production in 2017. It is unusual to see this but it is an aside to places like Russia, the Ukraine and Kazakhstan, where grain production on all fronts is increasing.

The US dollar has been in a trading range between 98.5 and 101.25 over the last month. It will remain extremely important with regard to grain demand. Geopolitical events will continue to weigh in on this as well as interest rate increases in the United States. Of course, as always the Canadian dollar will generally move in an inverse fashion to the US dollar.

Commodity Specific Comments

Corn

Corn planting is behind normal slightly, but that probably doesn’t make a big difference in 2017 like it once did. Early spring weather forecasts had called for a wetter, cooler spring in the Midwest and that is exactly what is happened. However, it is not expected to impact corn planting.

This wetter, cooler weather in the Midwest did not do anything to corn futures except keep it in a tight range. It is like the market does not believe it has been a problem. The long-term weather forecast for summer sees no major threats on the horizon for the US corn crop. Of course, many people would say those are famous last words. If we knew what the weather was going to do, you know the rest of the story.

The May 2017 July 2017 corn futures spread is -.0675 cents as of April 23rd. The May corn contract is currently priced in the lower 32% of the five-year price distribution range. Seasonally, corn markets over the last five years tends to trend down into August.

Soybeans

There are a lot of soybeans in the world especially with their Brazilian friends producing 111 MMT, another record. Soybean futures have fallen, but have stabilized in and around the $9.50 mark. Over the last four years, we have seen soybeans rally $1.80-$3.00 from the South American harvest lows. Can we get part of that rally this year? History tells us yes.

Brazilian farmers have been reluctant sellers at these price levels. However, that can never hold forever and they own the export market at least for the near future. The Americans still produce approximately a third of world soybean supplies, so this growing season is still extremely important for price.

The May 2017 July 2017 soybean futures spread is considered bearish at -.0975 cents. The May soybean contract is currently priced in the lower 20% of the five-year price distribution range. Seasonally, the old crop market tends to trend up through late June.

Wheat

The wheat market continues almost like its Groundhog Day. For instance Chicago soft red wheat contracts reached again to their contract lows recently, which doesn’t lend confidence to wheat farmers especially when US wheat acres are at an almost century low.

The July 2017 September 2017 Chicago wheat futures spread is -.1450 cents, which is considered bearish. Seasonally, the Chicago market tends to trend down through mid-May. The Canadian dollar trading in the $.74 and $.75 range continues to give Ontario producers a slim glimmer of hope.

The Bottom Line (cont.)

It cannot be emphasized enough how important foreign exchange has been to Ontario farmers. With the loonie currently fluttering around the 74-cent level it puts a floor under grain prices, at least in Canadian values. Call it a mirage, call it price optics or call it what it is, sub $3 cash corn values are not a reality here like they are in much of the United States. The Canadian dollar is a large part of that, and it has an even more pronounced effect on Ontario soybeans and wheat.

As we move ahead into the spring planting season we need to keep in mind the acres published in the March 31st report. Will 90 million acres of corn and 89.5 million acres of soybeans come to fruition in the United States? Will there be major variances on that theme looking forward to the June 30th actual planting report? If there is some type of weather variance between now and then, how will the noncommercial demand component within the market react? Any market rally coming off these different possibilities will represent a good marketing opportunity.

There will be issues for this market going ahead. History tells us that. However, supply seems to be ruling the day with regard to prices. Having said that, there are a series of geopolitical concerns that still may add to price volatility. That may come from Asia, between China and North Korea and United States. Of course, there is every possibility in between.

The challenge for Ontario producers is to balance these marketing factors on a daily basis. Standing orders for grain are especially effective at a busy planting time. The road is littered with those analysts who thought they knew where price is going. The bottom line is good risk management never grows old. There will be many marketing opportunities ahead.

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.

Post-March 31 Special 2017

US and World

March 31 is always a seminal date in the grain price calendar. Each year on this date the United States Department of Agriculture (U.S.D.A.) releases their prospective plantings report for all the major crops. It usually serves as the official starting gun on the new crop year as it refines its estimates for crops about to be planted across the United States. It also can represent a major flashpoint in the market along with June 30 and the January U.S.D.A. report as market volatility is usually accentuated as the market focuses on the U.S.D.A. numbers. Quarterly stocks are also released which always gives a good measurement on old crop demand.

On March 31 the U.S.D.A. announced that farmers were expected to plant 90 million acres of corn, down 4 million acres from last year. On the other hand, the U.S.D.A. announced that soybean acreage would be up 7% from a year ago coming in at 89.5 million acres. The U.S.D.A. also pegged U.S. wheat acreage at 46.1 million acres, which is the lowest recorded wheat acreage in the United States since they began keeping records in 1919.  Clearly, there was a major move toward soybeans in the estimates taking away from other crops.  The major exception was cotton acreage, which U.S.D.A. projected at 12.2 million acres, which is up 21% from a year ago.

Quarterly stocks for corn were pegged at 8.62 billion bushels, which was up 10% from a year ago.  This is reflective of the big crop last year.  Usage from December 2016 to February 2017 actually increased to 3.77 billion bushels, up from 3.41 billion bushels last year.  Soybean stocks were pegged at 1.73 billion bushels, which were up 13% from last year.  The December to February usage was 1.16 billion bushels, which represented a 2% decrease from your go.  All the wheat stocks were projected at 1.66 billion bushels, which was up 21% from a year ago.

On March 31st, corn, soybeans, and wheat futures were lower than the last Market Trends report. May corn 2017 futures were at $3.64 a bushel. The May 2017 soybean futures were at $9.46 a bushel. The May 2017 Chicago wheat futures closed at $4.26 a bushel. The Minneapolis May 2017 wheat futures closed at $5.33 a bushel with the September 2017 contract closing at $5.49 a bushel.

The nearby oil futures as of March 31 closed at $50.60/barrel down from the nearby futures of last month of $53.86/barrel. The average price for ethanol on March 31 in the U.S. was $1.74 a US gallon up from last month at $1.74 a US gallon.

The Canadian dollar noon rate on March 31 was .7500 U.S. down from the .7649 U.S. reported here last month. The Bank of Canadas lending rate remained at 0.50.

Ontario

In Ontario the mild winter has transitioned into a wet and mild spring. Winter wheat acres are now starting to green up across the province even though weather has been cool and wet. As we move into April seed drills will be starting to roll especially on lighter soils and the likelihood of widespread corn planting will start toward the end of the month.

The crop mix in Ontario is unlikely to change in 2017 versus a year ago. Last year we had approximately 2.015 million acres of corn and 2.695 million acres of soybeans in Ontario. With the Canadian dollar creating $5 and $13 new crop pricing opportunities this past winter there should be no shift one way or the other. However, spring weather will largely determine that as corn acres can be reduced by wet and cold springs.

The Ontario corn basis values have decreased into April 1. There continues to be ample corn supply in Ontario for the near future. With the U.S. replacement price at approximately $5.25, and import basis seems unlikely. The soybean basis has also gyrated on the Canadian dollar, but the futures drop throughout March has decreased that value as well. The Canadian dollar will continue to influence our cash price values directly for soybeans and wheat as we move ahead.

Old crop corn basis levels are $.65 to $1.15 over the May 2017 corn futures on March 31 across the province. The new crop corn basis varied from .75 to $1.15 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.49 cents to $2.60 over the May 2017 futures. New crop soybeans range from $2.40-$2.61 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on March 31 were $4.93 for SWW, $4.93 for HRW, $4.93 for SRW and $5.64 for Red Spring Wheat. On March 31 the U.S. replacement price for corn was $5.25/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The U.S.D.A. always resets the goalposts on market conditions and they did that again on March 31. The 89.5 million acres of soybeans was slightly higher than trade expectations and reflective of a positive soybean to corn ratio throughout the winter.  If we use last year’s yield, we can expect 4.6 billion bushels of soybeans, which is 400 million more bushels than projected demand. When you add the large crops coming from South America this is a heavy burden for the soybean market to bear. Prices fell after the report on such a bearish scenario.

The corn market on the other hand rebounded from the March 31 U.S.D.A. numbers.  The 90 million acres of corn predicted by the U.S.D.A. was somewhat less than expected. If we yield the same as last year on those acres we will produce approximately 14.4 billion bushels of corn. This is approximately 200 million bushels above the early estimate for corn demand in 2017/18.  his is one reason why corn rebounded on the news, but it’s all still relative to the big stocks in corn in the United States as well as South America.

It should also be noted that the quarterly stocks were large, partly because of the big crops from last year, but also demand is not quite as strong as the hype around it.  For instance, U.S. soybean demand is down from a year ago. The quarterly corn stocks were higher than expected, but still reflected a new corn demand record high of 8.32 billion bushels. These numbers will need to be watched closely over the next eight weeks for possible demand variance.  In the corn market there is increased competition from Brazil this year. In the soybean market, there are just a lot of soybeans everywhere.

It is all so rudimentary.  It’s like it’s over before it’s even started. That’s how the March 31 U.S.D.A. report is sometimes looked at. However, there is a world of production risk ahead in the northern hemisphere. There will likely be some type of the summer rally because there always is. Weather in the northern hemisphere will be a large determinant of whether this comes true. History tells us there is always a correction, but it may not be this year. Needless to say, it will come.

Commodity Specific Comments

Corn

90 Million acres is down from last year, but it still represents a lot of corn when there are old crop stocks plentiful on the ground. Demand is very strong at 14.6 billion bushels. That means with an approximate trend line yield of 170 bushel/acre in 2017, corn-ending stocks would be down to 1.8 billion bushels. If you went down to 165, we’d be near 1.5 billion bushels. Clearly, any production hiccup this summer would help corn prices.

There generally is a change in the acreage prediction on March 31 and June 30. Sometimes this can result in a 1 million acre increase in corn. These numbers are fluid because weather is 80% of market prices. Farmers have the capacity to plant incredibly quickly, so acres on June 30th and summer weather hold the key.

The May 2017 July 2017 corn futures spread is -7.5 cents as of March 31, which is considered neutral. The May corn contract is still priced in the lower 14% of the five-year price distribution range. Seasonally, the corn market tends to trend down through August. Last year the high was hit in mid-June.

Soybeans

Soybean acres were the big winners in the U.S.D.A. March 31 report. 89.5 million acres are a lot of soybeans and it would’ve been even larger if there were not a 12% rise in the number of cotton acres predicted. Some of the soybean acres came from reducing corn acres, but the big move was from wheat states Kansas, Oklahoma, North Dakota and Minnesota and winter wheat states.

Of course the soybean price is down significantly with cash values now in Ontario below $12 a bushel. The Brazilian soybean crop continues to grow in size. Soybeans are often called the great liars, as their production potential always looks fickle until combines roll. It is hard to imagine a weather event in April that will reduce the potential crop. However, this is agriculture and anything can happen.

The May 2017 July 2017 soybean futures spread is $-.11 per bushel as of March 31. The May contract is currently priced in the lower 26% of the five-year price distribution range. Seasonally the markets five-year index shows the old crop market tends to trend up through late June.

Wheat

In United States farmers are growing the least wheat acres since 1919. This is reflective to some extent of the market share American farmers have lost in the wheat market worldwide. With increased production in places like the Black Sea region, it is difficult to imagine our American friends getting this back. Wheat stocks remain very onerous even with these reduced acreage projections. It will take a catastrophic black swan event to change this market.

In Ontario, one of the first tasks out of the gate in spring is side-dressing nitrogen to the wheat crop. This surely will be happening as things dry up into April. Acres usually change to some extent, but I would not expect much decrease from the approximate 900,000 Ontario wheat acres this year.

The Bottom Line (Cont.)

The value of the U.S. dollar has risen in the last few days of March, but fell off its highs from earlier in the month. The increase in interest rates in the United States is likely to continue and although it is hard to predict the value of the U.S. dollar, it will remain very important for our agricultural commodity prices. Any rise in the value of the U.S. dollar will be negative to grain futures prices.

This U.S. dollar at approximately 100 on the Index is having a corresponding effect on other currencies in the world. For instance, the Russian Ruble and Chinese Yuan are still fairly weak. The Brazilian Real has rebounded off its lows but still very low. These foreign exchange gyrations impact farmer selling in Brazil, foreign demand for Russian wheat and Chinese buying power. These factors, to say nothing about how it affects the Canadian dollar, impact our agricultural commodity demand.

It is almost like a broken record or like the 6:00 am wake-up call in the movie Groundhog Day with regard to the Canadian dollar. Fluttering around $.75 continues to create the cash price mirage of heightened prices here in Ontario. That accelerates when grain futures prices are rising, but in the current environment of falling futures prices it accelerates downward.  It’s all part of pricing grain on farms in Ontario. It continues.

The marketplace is not immune from any black swan event in the coming weeks. The March 31 U.S.D.A. report has set the table for the immediate grain pricing future.  However, geopolitical events could also weigh in on this market. Political uncertainty between the U.S. and China and others always has to be measured. Clearly though, large grain supplies and projections have forged a bearish market environment.  In Ontario this has been partly mitigated by a low Canadian dollar, which continues to challenge our on farm-marketing environment. There will be a U.S.D.A. retrenchment on June 30 with surveyed actual acres planted. The market surely will be volatile heading toward there. Daily market intelligence remains key.

 

Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.