Market trends report for January-February 2018

US AND WORLD

Winter weather blows across North American farm country as another year has gone and we greet 2018. The 2017 growing season was very uneven across North America, but memories of that are fading. Grain prices have suffered under the specter of big crop numbers that have been projected by both the USDA and private analysts throughout 2017. The January USDA report is always the final report on the crop year that past. On January 12th the USDA released a plethora of crop numbers, which will define the grain marketplace for the coming year.

On January 12th, the USDA increased 2017 US corn production to 14.6 billion bushels, on a harvested acreage of 82.7 million acres. The average yield was increased to 176.6 bushels per acre, which was 2 bushels above the 2016/17 crop. 2017/18 corn ending stocks were raised to 2.48 billion bushels. Total corn usage was actually reduced to 14.470 billion bushels, down from 14.485 last month. US exports are down and US ethanol corn usage was down from December. Corn stored on December 1 was 12.516 billion bushels, which was above trade expectations.

The final 2017 soybean production came in at 4.39 billion bushels, which was below trade expectations. The national yield was pegged at 49.1 bushels/acre, which was a reduction from the 49.5 bushels per acre in December. On December 1 total soybeans stocks were 3.157 billion bushels, which was up 9% from year ago. The USDA increased soybean-ending stocks for 2017/18 to 470 million bushels. The harvested acreage for soybeans was up 8% from a year ago at 89.5 million acres. The winter wheat acreage was pegged at 32.6 million acres, which is the lowest in the US in over a century.

On Jan 12th, corn and soybeans were lower than the last Market Trends report. Wheat futures were slightly higher. March 2018 corn futures were at $3.46 a bushel. The March 2018 soybean futures were at $9.60 a bushel. The March 2018 Chicago wheat futures closed at $4.20 a bushel. The Minneapolis March 2018 wheat futures closed at $6.12 a bushel with the September 2018 contract closing at $6.21 a bushel.

The nearby oil futures as of January 12th closed at $64.30/barrel up from the nearby futures of last month of $57.30/barrel. The average price for ethanol on January 12th in the US was $1.50 a US gallon up from last month at $1.48 a US gallon.

The Canadian dollar noon rate on January 12th was .7997 US up from .7792 US reported here last month. The Bank of Canada’s lending rate remained at 1.0%.

ONTARIO

In Ontario there has been heavy snowfall in late December and early January followed by rain and unusually mild weather and then back to cold again. It is probably not the best for the winter wheat, but of course it is way too early to tell. There are a few cornfields left in the province with farmers surely looking for the right weather to get those harvested.

Ontario basis levels have decreased since late December and early January. The Canadian dollar rising has had something to do with this in wheat and soybeans. However, the corn basis has decreased to some extent partly because of the big Ontario crop last year. Statistics Canada had predicted 169.5 bushels per acre of corn, but private yields are higher than that. Despite these lower basis levels, Ontario producers are still better off than their American cousins regarding basis.

New Ontario corn demand is in the offing with the proposal from the Ontario government to increase gasoline ethanol blends to 10% by 2020. This is welcome news to Ontario farmers and the environment. Moving to this blend would reduce carbon emissions by 2 mega-tonnes per year. Apparently, that is equivalent to taking 30,000 cars off the roads.

Old crop corn basis levels are $.55 to $.92 over the March 2018 corn futures on January 12th across the province. The new crop corn basis varied from .55 to .85 over the December 2018 corn futures. The old crop basis levels for soybeans range from $1.65 cents to $1.75 over the March 2018 futures. New crop soybeans range from $1.70-$1.80 over the November 2018 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on January 12th were $4.93 for SWW, $5.06 for HRW, $4.93 for SRW and $6.33 for Red Spring Wheat. On January 12th the US replacement price for corn was $4.63/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

THE BOTTOM LINE

Market forces are continuing to substantiate the bearish market environment. The January 12th USDA report brought home the fact that the 2017 corn crop in the United States was one for the ages. In fact, if the planted acres had not fallen so much in the spring, ending stocks would’ve grown even more onerous. A small bullish glimmer came in a cut to US soybean yield. However, 49.1 bushels per acre of soybeans is still substantial.

In the corn market it is getting serious, if you didn’t think so already. It is easy for Canadian farmers insulated with a lower Canadian dollar to forget that. For instance, over the last few years the highs in the corn market have been coming at lower prices usually in the late spring or summer. This is been followed by new lows established in late summer or early fall. 2017 was exactly like that and with 2018 in the offing; minus a weather event lower highs again could be reality.

At the present time the November soybean futures to December corn futures ratio is running near 2.6:1. This favours increase soybean production in the United States versus corn. In fact, this present ratio is slightly lower than last year, but the United States still planted more corn than soybeans in 2017. That is one reason why in the United States it’s very difficult to imagine planting less corn versus soybeans in 2018. However, at a certain point, one would think those ratios would become more real. Maybe this is the year, despite corn’s great productivity that the planters will stop early.

Keep in mind that cash basis levels in some areas of the United States are largely negative for corn. It is the same, albeit better in Ontario, but still negative in American terms. With our propensity to produce corn in Ontario and our foreign exchange mirage effect on cash prices, sometimes it’s easy to forget that. If the trend holds true cash corn prices in the US would be seriously into the sub $3 range. The drive to 300-bushel yields does help, but it is a vicious cycle.

COMMODITY SPECIFIC COMMENTS

Corn

With so much corn on the ground there may be some impetus for changes in the US regarding ethanol. For instance, what about mandated E12 or E15? In some states like Illinois corn ending stocks actually increased and this is led to basis levels, which are moribund. The hurt is real and there will be some soul-searching on planting corn versus soybeans the spring.

That debate will certainly rage over the next eight weeks and it will probably be compounded by crop conditions in South America. At a certain point, it is reasonable to assume that corn might benefit from higher crude prices and a higher commodity index in general.

The March 2018 May 2018 corn futures spread is currently -8.5 cents US as of January 12th. This is considered bearish. Seasonally the corn market tends to trend up through early June. The March contract is currently priced in the lower 9% of the five-year price distribution range

Soybeans

Soybeans have always been characterized by having insatiable demand worldwide. China has certainly been a large part of that. However, in the January 12th USDA report the USDA cut soybean exports lower by 65 million bushels. Hopefully, this is a momentary thing, and soybean exports will pick up in the United States until South American supplies come online.

Of course, there are some who say soybean acres will outstrip corn acres in 2018 in the United States. Whether that happens or not, it’s clear that soybeans are finding favor. In Canada last year there was 2.3 million acres in Manitoba and 850,000 acres in Saskatchewan. That’s indication that if the price is right, global soybean expansion will certainly be in the offing.

The March 2018 May 2018 soybean futures spread as of January 12th is -11.5 cents US. This is considered bearish. The March 2018 soybean contract is currently priced in the lower 22% of the five-year price distribution range. Seasonally the soybean markets five-year seasonal index tends to trend up through mid-June.

Wheat

Wheat continues to not get a lot of respect, as winter wheat acreage in the United States this year is the lowest in more than a century. In fact, in the January 12 report many analysts had expected it to decrease further. Russia has certainly taken part of this business. There are also huge differences with regard to market fundamentals in the different classes of wheat, with protein being at a premium. Uneven weather currently in Kansas is causing some concern in these markets.

In Ontario, the winter wheat, which was under a thick blanket of snow, has seen a partial January thaw, much of it exposed in southwestern Ontario. As we all know, it is difficult to determine at this stage how the wheat will survive into next year. The Canadian dollar will continue to have a substantial impact on the price of Ontario wheat.

THE BOTTOM LINE (CONT.)

The Canadian dollar continues to influence our Ontario cash grain prices especially for soybeans and wheat. It rose to over 80 cents US on the January 5th news that Canada’s unemployment rate had fallen to 5.7%, which is a 40-year low. However, it has been volatile. Rumors of an impending American exit from the NAFTA talks had it drop three quarters of the sent in one day soon after. In Ontario farm country, watching the loonie movement is so key to our marketing.

These nuances in the Canadian dollar’s movement will continue. However, generally speaking the Canadian dollar moves in an inverse fashion to the value of the US dollar. At a certain point, one would think that the American dollar would start rising again on their good economy. That should be a signal for Canadian dollar weakness.

In their January 12th USDA pegged Brazilian soybean production at 110 MMT and Argentina at 57 MMT. Clearly, this is a big supply in the pipeline, but it is not made yet. South American weather is critical to sustaining this crop and if it changes, soybean futures prices will move up. Their weather and corresponding movements and soybean futures prices needs to be closely monitored over the next four weeks.

Despite bearish market conditions, history tells us there will be grain price rallies this winter and going into early spring. Farmers selling will be part of that equation. For many bin doors are slammed shut, but they will eventually have to open. The challenge for Ontario producers is to measure all the different marketing factors that come into play including our Canadian dollar. Capitalize on those marketing opportunities when they arise, learn from them and never look back.

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 December 2017 – January 2018

US and World

The machinery is put away and snow has fallen across much of the North American corn belt as another year is rapidly coming to an end. There might be a few cornfields left out there to harvest, but realistically the 2017 crop year has come to an end. It was marked from some very uneven weather across the corn belt, but it didn’t seem to make any difference to yield overall. It is a testament to management and modern science that even in a year of spotty weather conditions, yields have been maintained and increased across the board.

In their December world agricultural supply and demand estimates (WASDE) the USDA weighed in with their latest crop numbers. Usually the December report is of little consequence to overall market action. It comes a month before the final USDA report in January, which is typically explosive in nature. On December 12th, the USDA maintained 2017 yield estimates at 175.4 bushels per acre for corn and 49.5 bushels per acre for soybeans.

In the December report the USDA pegged US corn ending stocks at 2.437 billion bushels, which is below pre-report estimates. USDA actually increased ethanol usage by 50 million bushels, as US ethanol exports have been strong. Higher US sorghum export estimates were also a reason as some ethanol plants, which use both corn and sorghum used more corn. US corn exports were maintained from November at 1.925 billion bushels. On the soybean side, USDA actually reduced soybean exports 25 million bushels as Argentinian and Brazilian exports remain strong. The soybeans ending stocks was actually increased by 20 million bushels to 445 million bushels. USDA maintained Brazilian and Argentinian soybean production at 108 MMT and 57 MMT respectively. The USDA actually lowered wheat exports by 25 million bushels to 975 million bushels partly because Canadian export pace has been highly competitive.

On Dec 15th, corn futures were higher, but soybeans and wheat futures were lower than the last Market Trends report. March 2018 corn futures were at $3.47 a bushel. The January 2018 soybean futures were at $9.67 a bushel. The December 2017 Chicago wheat futures closed at $4.18 a bushel. The Minneapolis December 2017 wheat futures closed at $6.20 a bushel with the September 2018 contract closing at $6.26 a bushel.

The nearby oil futures as of December 15th closed at $57.30/barrel up from the nearby futures of last month of $56.74/barrel. The average price for ethanol on December 15th in the US was $1.48 a US gallon down from last month at $1.62 a US gallon.

The Canadian dollar noon rate on December 15th was .7792 US down from .7885 US reported here last month. The Bank of Canada’s lending rate remained at 1.0%.

Ontario

In Ontario corn harvest continues in parts of the province where wet weather had delayed harvest. However, winter weather has descended across Ontario with moderate to heavy snow impacting many cornfields. Harvest of the crop left in these fields may be pushed into 2018. Most of the crop however is harvested in Western Ontario and yields have been tremendous. The Statistics Canada projected corn yield of 169.5 bushels per acre, once negated here, has new resonance. In SW Ontario, corn is piled everywhere.

The big news in Ontario is the announcement from the Ministry of the Environment and Climate Change that Ontario is looking to move to a 10% ethanol mandate by 2020. This is seen as a boon for domestic Ontario corn production and ethanol refining. It is a big facet of increasing the Ontario demand for corn. If realized, it will reduce carbon emissions and stimulate the agricultural economy within Ontario. The focus now will be on how we move forward into 2020 and beyond.

Ontario corn basis levels have decreased through October and November as crop size was realized. Eastern Ontario still maintains an approximate $.40 premium to basis levels in southwestern Ontario. This is usually always the fact and will likely be maintained into 2018 and beyond. The Canadian dollar has been fluttering around the 77 and $.78 US level helping to maintain cash grain prices where they are. It continues to be a buffer for cash prices in Ontario.

Old crop corn basis levels are $.55 to $1.01 over the March 2017 corn futures on December 15th across the province. The new crop corn basis varied from .65 to .84 over the December 2018 corn futures. The old crop basis levels for soybeans range from $1.81 cents to $2.05 over the January 2018 futures. New crop soybeans range from $1.85-$1.86-$2.05 over the November 2018 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on December 15th were $4.81 for SWW, $5.07 for HRW, $4.94 for SRW and $6.64 for Red Spring Wheat. On December 15th the US replacement price for corn was $4.78/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

The Bottom Line

December can be one of the most bearish times of the year for the grain market and in 2017 that might be the case especially with the January USDA report in front of us. The January 12th USDA report will be the final estimate of yield on the 2017 crop. There are always fireworks on that day because of the implications on price. If the USDA decides to raise yield even further on US corn, it will have a very tough affect on prices.

Of course, if the USDA cuts production it will go the other way. Nobody knows. Corn demand is down from last year but still pegged at 14.485 billion bushels, which is incredible. The main reason that prices have decreased over time is because of our production propensity to continually raise yields. The science of this will likely continue, but not necessarily the weather to support it. Demand will likely continue to grow again, but eventually supply will have a hiccup and there will be a correction. Prices will eventually move up.

At the present time weather for the South American soybean crop is benign. There had been some dryness in Argentina, but it is been mitigated by rain. Needless to say, rain totals and weather nuances in Brazil and Argentina for the next two months will be critical for soybean price movement as they produce half the world’s soybeans. USDA has continued to say 108 MMT of Brazilian soybeans, while CONAB has said 109.2 MMT. The road to getting this big crop will surely be uneven and that will add to the soybean price volatility.

Ethanol is always part of the equation when it comes to corn and the boost and ethanol demand in the December USDA report was welcome. On the soybean side of the ledger increased biodiesel demand, which is being predicted needs to happen to further boost soybean demand. China’s insatiable appetite for soybeans continues, but US demand was cut in the December report. Simply put, even for soybeans we cannot take anything for granted.

Commodity Specific Comments

Corn

Corn nearby futures prices near the $3.40 level is not getting anybody excited. The burden of the big crop continues to weigh on both futures and cash prices. In fact, we have been in this for quite some time. Over the last five years from December through to the following November, the new crop corn price has seen its highest weekly close in the first week of December. For this year, that means a December futures of $3.85. We’ll see what happens.

Ethanol seems to be getting a little bit more buzz these days especially with USDA raising ethanol demand in their December report by 50 million bushels. At the same time, we know that China is looking to use more ethanol in future years. Japan is now actively importing American ethanol. Canada remains the United States biggest ethanol customer, partly because of demand for British Columbia. Then of course, there is the recent Ontario announcement of moving toward a 10% ethanol blend by 2020.

The March-May 2018 corn futures spread is now -8.25 cents, which is considered bearish. The March corn contract is currently priced in the lower 10% of the market’s past five-year price distribution range. Seasonally, over the last five years the market tends to trend down January.

Soybeans

Soybeans are currently going into a critical phase in Brazil and Argentina. January and February are critical to yield in both of those South American countries. Recently, the soybean price was maintained by dryness in Argentina, but recent rains there quickly overtook this. Simply put, over the next eight weeks whether markets in South America will affect the price of soybean futures. Presently, there are no real problems. However, this could change anytime.

This is a time when the United States usually takes over the world export market for soybeans as South American supplies dwindle. However, the December report showed a 25 million bushel decrease in US exports. This is somewhat troubling especially in a time when US soybean prices are cheaper than South American supplies of the gulf. It is likely to pick up into January.

The January-March 2018 soybean futures spread is -10.75 cents, which is considered bearish. The January soybean futures contract is currently priced in the lower 31% of the last five-year price distribution range. Seasonally, over the last five years nearby soybean futures tend to trend down through the first week of January.

Wheat

The wheat market continues to be under the burden of big global wheat supplies. This is happening however within a market that sometimes has a huge need for HRS wheat with really good protein levels. In fact, the popular press has ran many articles lately about bakers not having adequate supplies of protein rich wheat. Russia and the Black Sea region continue to replace lost US wheat acres on the global market. As we move through winter the focus for US wheat will be on snow cover and the condition of the crop in the field.

In Ontario the wheat is now under a blanket of snow almost across the entirety of the province. Of course, at this point there is no idea how it will emerge in three months time. Keeping that Canadian dollar under $.80 US will remain helpful to Ontario wheat prices.

The Bottom Line (cont.)

It would be nice to have a robust noncommercial demand sector for grain bursting at the seams. However, that is not the case especially in a time with burdensome supplies worldwide. At the present time non-commercials are short corn approximately 200,000 contracts with no sign of that ending. Of course, that can change very quickly, but it is unlikely to do so until some type of production problem in 2018. However, in this bearish environment with big ending stocks in the United States, it may not change even then.

The Canadian dollar continues to change the cash grain price optics in Ontario. The Bank of Canada has kept interest rates the same last month and the Bank of Canada governor Stephen Poloz continues to manage monetary policy on good Canadian economic numbers. Generally speaking, the value of the Canadian dollar has an inverse relationship to the value of the US dollar and this needs to be continually monitored. Any move upward into the 80-90 cent levels US means a major erosion of cash grain prices regardless of what futures price do.

As stated earlier, the announcement of the move from Ontario to go to a 10% ethanol blend represents a significant structural institutional improvement in the long-term demand for Ontario corn. However, there is a difference between an announcement and actual demand being created. Over the next few years infrastructure will need to be spawned to satisfy this demand. With the earlier creation of the Ontario ethanol industry partly forged through the past Ontario Ethanol Growth Fund, the industry should be poised to take advantage of this new regulatory environment.

Despite the bearish market environment, history tells us that there will be many marketing opportunities ahead for both old and new crop. This is especially true with the many marketing tools available to farmers. However, it does not cure that bearish environment overnight. In December 2017 that is where we find ourselves. The challenge for Ontario producers is to position themselves in front of the January 12th USDA report. Refine and retool those marketing plans for 2018. It surely will be a challenging year.

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 November-December 2017

US and World

Harvest time is in full swing across United States and Ontario. There have been delays, but as usual, farmers in 2017 like they have many times before are finding ways to get the crop in the bin. Yield monitors flickering on social media have been a harbinger of big yields in the United States as one of the biggest crops in American history gets closer to the finish line. How big that crop has become has been a great subject of debate over the last several months.

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On November 9th USDA chimed in with their latest crop production report. In a surprise move, which shocked the market the USDA raised 2017/2018-corn production to 14.58 billion bushels. This was on a projected yield of 175.4 bushels per acre, which was up from its October estimate of 171.8 bushels per acre. This was outside any pre-report estimates on the high side and the market responded accordingly by falling seven cents on the day. If this yield comes to fruition, it will be the largest US domestic corn yield in history. US domestic corn stocks are projected to increase to 2.49 billion bushels, a very onerous figure headed into next year.

It was a different story for soybeans. The USDA projected soybean production for 2017/2018 to be 4.425 billion bushels, which was actually down from their October estimate of 4.431 billion bushels. This was within range of pre-report estimates. It was based on a US final yield of 49.5 bushels per acre, which was the same as the October estimate. The US soybean ending stocks were reduced to 425 million bushels, which was down from their October estimate of 430 million bushels. The 2017/2018 US wheat-ending stocks were pegged at 935 million bushels, which was down from their October estimate of 960 million bushels.

On Nov 11th, corn soybeans and wheat futures were lower than the last Market Trends report. December corn 2017 futures were at $3.43 a bushel. The January 2018 soybean futures were at $9.87 a bushel. The December 2017 Chicago wheat futures closed at $4.31 a bushel. The Minneapolis December 2017 wheat futures closed at $6.47 a bushel with the September 2018 contract closing at $6.46 a bushel.

The nearby oil futures as of November 11th closed at $56.74/barrel up from the nearby futures of last month of $51.45/barrel. The average price for ethanol on November 11th in the US was $1.62 a US gallon down from last month at $1.65 a US gallon.

The Canadian dollar noon rate on November 11th was .7885 US down from .8008 US reported here last month. The Bank of Canada’s lending rate remained at 1.0%.

Ontario

In Ontario, both soybeans and corn are being harvested in a fall, which has seen some uneven weather. For instance, a significant percentage of Ontario soybeans are still in the field as of November 11th as warm sunny days have been at a premium and soggy ground conditions are only adding to the difficulty. At the same time corn is being harvested across the province with some very high yields being reported in the Deep South West as well as many other parts of the province. It would seem that the Statistics Canada estimate of 169.5 bushels per acre might come to fruition. If this is true, it will be the largest Ontario corn yield ever reported. However, with difficult harvest weather and snow as we head to December, it is likely that in some areas, much of the corn crop will not be harvested until 2018.

The Canadian dollar has given back a couple cents since last month, which has been helpful for the Ontario soybean basis. The Ontario corn basis has held together during harvest so far, with the higher basis in Eastern Ontario still very evident. This is likely to be maintained throughout the year giving these producers some advantage over producers west of Toronto. It is very likely based on the volume of corn coming off in Ontario there will be enough corn to satisfy domestic demand for the rest of the year. However, harvest is not over yet, there is much more that could happen.

Ontario farmers will need to continue to watch the Canadian dollar and anticipate how that might affect the soybean and wheat basis. It is unlikely to affect the corn basis for the next few months. The major factor affecting the Canadian dollar is the value of the US dollar, which has been going up since September 8th. Generally speaking, the Canadian dollars value is inverse to the value of the US dollar. President Trump, NAFTA, US Federal Reserve News and the Bank of Canada monetary policy moves all have an effect on this foreign exchange puzzle. Flat cash pricing in Ontario is gaining favour because of this.

Old crop corn basis levels are $.70 to $1.25 over the December 2017 corn futures on November 11th across the province. The new crop corn basis varied from .70 to .90 over the December 2018 corn futures. The old crop basis levels for soybeans range from $1.75 cents to $2.00 over the January 2018 futures. New crop soybeans range from $1.85-$2.00 over the November 2018 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on November 11th were $5.09 for SWW, $5.34 for HRW, $5.22 for SRW and $7.07 for Red Spring Wheat. On November 11th the US replacement price for corn was $4.67/bushel. You can access all of these Ontario grain in the marketing section at gfo.ca.

The Bottom Line

Over two decades of writing market commentary, I’ve seen the USDA provide many of a surprise when it comes to estimating actual yields. The November 9th USDA report counts as one of those reports that truly shocked the market. All summer we had heard about crop conditions reports coming from the USDA’s own NASS crop condition numbers, which were worse than 2016. However, there was room in the expectation window for higher yields, but it was a surprise to almost everybody that the USDA pushed corn yield to 175.4 bushels/acre from 172.3 bushels per acre last month. One explanation was ear weights, which were higher than projected.

How does this happen? Answering that question would probably take a PhD thesis, but clearly science, improved genetics and management are weighing into the corn yield equation. The USDA weighed in with their number in an already bearish market environment, where deferred corn futures spreads were giving us all the clues. We might not be in the 300 bushels per acre world yet, but it would seem that were getting closer every year.

The market is surely adjusting to this new market reality and the next few weeks in the futures market should tell us more about the strength of demand and whether these current low prices will be maintained. The January USDA “final” report is also in the distance and in this bearish market environment, it might not be too off-board by surmising US corn yield might go up again.

Soybeans held court after the November USDA report was announced, even though traders were expecting a reduction in yield. Needless to say, 4.425 billion bushels is a record US soybean crop. In many ways, if you think hard about that, maintaining a soybean futures price at $9.87 or $10.00 with that supply is hard to imagine. That is how strong demand is. Big supplies of soybeans are never guaranteed, even though on a global basis it continues to keep up with demand.

Commodity Specific Comments

Corn

The corn market is recoiling from the USDA’s big markets surprise of 175.4 bushels per acre. However, as of November 11th, corn is still about $.11 above last year’s lows, which happened in August. Therefore, we are not far away from those lows but from a calendar perspective it is completely different. If the US dollar cools a bit, it may help to keep from going down further.

At these prices, corn is the favored feed source over wheat and it is likely to continue if prices do not move. One could argue that the corn futures range from approximately $3.40 to $4.30 and producers have to find their way through that, especially in a market environment where we have US corn ending stocks of approximately 2.5 billion bushels.

The December 2017 March 2018 corn futures spread as of November 11th is currently -13.25 cents, which is considered bearish. Seasonally the corn futures markets five-year range shows that it trends up into the first week of December. The December contract is currently priced in the lower 7% of the corn futures market past five-year price distribution range.

Soybeans

Everybody it would seem is thinking that soybeans might hold the key to higher prices in the grains complex. There is certainly good demand for soybeans, which is continually growing and always depends on an ever-expanding supply from both the United States and South America. A record production in the United States this year will again satisfy that requirement.

Clearly, with soybeans still to be harvested and South American soybeans in all stages of development from planting there is much risk within this market. However, numbers do not lie and there are lots of beans at the moment. Any hiccup in the South American weather forecast in the next two months will cause some excitement in the soybean futures market.

The January 2018 March 2018 soybean futures spread is $-.11 as of November 11th. This is considered bearish. Seasonally the soybean futures market over the last five years shows it nearby futures tend to trend up through the first week of December. The January soybean futures contract is currently priced at the lower 42% of the past five-year price distribution range.

Wheat

There is lots of wheat in the world and that means that Chicago wheat futures remain in a low range where they finished on November 9th at $4.31. 91% of US winter wheat has been planted in the latest USDA crop progress report. This acreage will likely be at risk considering that soybeans again look like a better bet versus other grains. These futures prices are likely to remain in a roughly sideways pattern throughout the winter.

Winter wheat acreage in Ontario had a staggered planting progress throughout the month of October. Much of the wheat planted in the October 18-21 range went into the ground in good shape but got heavy rain after that. It is difficult to know exactly how many acres were planted but it is likely to be the same or more has 2017. Of course, along Canadian winter is in the offing and it will have much to say with regard to 2018 wheat acreage.

The Bottom Line (cont.)

In this bearish market environment there is hope, even though that is not a marketing plan. It comes again from China, which announced recently a new government policy to implement a 10% ethanol blend nationwide by 2020. At the present time ethanol added gasoline is only available in approximately 11 provinces and represents only 20% of gasoline consumed in China. According to DTN, at the present time there are 205 million cars in China, which consumed 3.8 billion gallons of gasoline. At 10% ethanol blend would ultimately result in corn demand of 1.4 billion bushels.

Keep in mind that not all ethanol in China is produced from corn and that the total ethanol demand figure might be less. However, this is not a reality yet, only a policy goal. It represents future demand that is not there yet, but it is on the way. It represents hope for the future of commodity demand. With China’s burgeoning population and increasing economic growth, there is a great need. However, getting there is never smooth. Putting the infrastructure together in China to satisfy this ethanol goal will take time, patience and probably a little luck from a North American farmer’s perspective.

Of course, our world is in a bit of an uneven state at the moment with the Americans aggressively redefining trade agreements such as NAFTA and the TPP. Believing that American grain can seamlessly trade into these markets without trade agreements seems fanciful, but it is what it is. Mexico has significantly reduced their corn buying from the United States in July and August of the past year.

In Ontario, the Canadian dollar continues to cushion the effects of low futures prices with cash prices of approximately $4.17 for corn and $11.75 for soybeans. With the Canadian dollar inversely related to the value of the US dollar, much focus will be on the new future US Federal Reserve Chairman Jerome Powell, who President Trump has named as his replacement of Chairwomen Janet Yellen. Flat pricing of cash grain in a volatile foreign exchange market could continue to find acceptance with Ontario farmers. Balancing foreign exchange with futures continues to challenge.

As harvest continues, daily market intelligence will remain key. The last bushel may not be harvested in Ontario until 2018 as snowy weather has moved into some parts of the province. The focus is shifting away from the big crop in North America to South American weather, which so far has been benign. The challenge remains for Ontario farmers to work their marketing plans and immerse themselves in all of these different marketing factors.

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 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.