Market Trends Report for March-April 2015

US and World

You can feel it coming. That is spring. AS we turn the calendar over into March, it always represents a time of hope across farm country. In Ontario, a very tough cold February is in the rearview mirror and snow is beginning to melt. It is just like that across the American corn belt except more so. Farmers are beginning real hands-on preparation to move to the fields in a few weeks. Just as farmers are preparing to get into those fields, the grain markets are also focusing in on potential acreage for 2015. The USDA weighs in on those acreage projections on March 31st.

The March 31st USDA prospective plantings report is one of the three major reports of the year. So the March 10th USDA report is often looked at as a minor affair with regard to price action. 2015 was no different. On March 10th the USDA lowered domestic corn ending stocks by 50 million bushels down to 1.778 billion bushels. However, the USDA also increased feed and residual use by 50 million bushels and exports by 50 million bushels. The US corn stocks to use ratio declined to 13%. The USDA also lowered global corn ending stocks by 4.4 million MMT.

Soybeans have been fixated on South American production fields now into the home stretch of their harvest season. The USDA on March 10th did not change the US domestic supply and demand tables leaving ending stocks at 385 million bushels. They left Brazilian and Argentinian soybean production at 94.5 MMT and 56 MMT respectively. In the wheat market the USDA increased wheat used for seed by one million bushels. US ending stocks declined to 691 million bushels and the stocks to use ratio declined to 33.1%.

On March 13th, corn, soybean and wheat nearby futures prices were lower than the last month. Corn futures as of March 13th had the May 2015 futures at $3.80 a bushel. The May 2015 soybeans were at $9.74 bushel. The March 2015 Chicago wheat futures closed at $5.02 a bushel on March 13th. The Minneapolis May 2015 wheat futures closed on March 13th at $5.67 a bushel with the September 2015 contract closing at 5.80 a bushel.

The nearby oil futures as of March 13th closed at $44.84/barrel down from the nearby futures of last month of $51.09. The average price for ethanol on March 13th in the US was $1.82 a US gallon vs. last month at $1.78 a US gallon.

The Canadian dollar noon rate on March 13th was .7811 US down from the .8024 US reported here last month. The Bank of Canada's lending rate remained at 0.75%.

Ontario

In Ontario, a very tough last eight weeks of winter seems to have broken. Temperatures above freezing are melting winter snows. There is actually some harvest activity in Ontario fields as some growers have got back into corn left over winter. This corn is testing between 16 and 18%, a drop of approximately 40% since it was left in December. Needless to say, farmers are focused on the spring planting plans and that crop mix will surely determine basis levels come this fall.

Basis for corn has actually softened to some extent across the province, but has withstood some of that depreciation because of the lower value of the Canadian dollar. Any American corn coming in now will be on older contracts. Cash values above $5 dollars for old crop is widely seen in Eastern Ontario. Vessels are scheduled to dock into the east when the ice clears having implications for lower basis levels. At a certain point Ontario corn may return to import pricing.

The US basis for soybeans has also softened over the last month despite the lower Canadian dollar. Capacity cutbacks at some Ontario crushers have forced this. However, with the Canadian dollar weakness it is almost transparent to farmers. Needless to say, in this currency environment checking the basis is extremely important when pulling the sales trigger.

Old crop corn basis levels are .80 to $1.00 over the May 2015 corn futures on March 13th across the province. The new crop corn basis varied from .40 to $.95 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.85 cents to $2.15 over the May 2015 futures. New crop soybeans range from $1.65 to $2.20 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on March 13th were $7.32 for SWW, $6.87 for HRW, $6.36 for SRW and $6.75 for Red Spring Wheat. On March 13th the US replacement price for corn was $5.16/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Going into March we've seen more decline than sideways in the grain markets. To some extent this has been mitigated in Ontario by the declining Canadian dollar. However, in South America harvest is heading toward completion with record crops coming out of those fields. A Brazilian trucker strike caused somewhat of a hiccup in that process as diesel fuel became scarce across the country, but that has fizzled as of late. Those soybeans will eventually be delivered to ports and the Safrinha corn will get planted. Our old crop is in the rearview mirror; the focus now is squarely a new crop.

Like a raging bull, the US dollar has been on a rampage currently breaching the 100 level on the USDX. This is extremely significant with regard to our grain futures prices and commodities in general. In fact, this represents a 12-year high in the US dollar, which acts as a brake on agricultural prices going higher. A high US dollar results in higher commodity prices for foreign buyers. As we head into spring of 2015, the specter of an even higher dollar after a US interest rate hike will likely continue to put a damper on our futures price horizon.

At the same time that the US dollar is rising higher, it is having the opposite effect on the Canadian dollar. While the American economy is growing strongly, it is not so for much of the Canadian economy. With the price of oil at low levels Western Canada is not the job engine it once was. On the other hand a lower Canadian dollar is good for Ontario and this was recently justified as Ontario leads all provinces in economic growth, the first time in 15 years. Needless to say, the much lower Canadian dollar into the high 70s US continue to cushion Ontario farmers from substantial price declines. As we move ahead in 2015 this remains the story in the Ontario grain market.

It remains a bearish situation compared to where we have been over the last five years regarding grain fundamentals. However, there is dryness in the US southern Plains, which may be working itself into the American Midwest. It is certainly affecting standing wheat in the United States. South America despite their record crop still has their infrastructure problems. With Argentina having a 35% export tax on soybeans, the situation there will remain muddled. So there is enough political instability in the world to create that unexpected Tuesday of explosive price movement. 2015 will probably not be telescoped as a year just like the others

Commodity Specific Comments

Corn

Despite the sideways to lower movement of corn futures over the last month, potential exists for future price appreciation. Corn demand at present is at record levels of 13.695 billion bushels. Even though we have had record crops, ending stocks continue to decline currently at 1.777 billion bushels. Even with corn planted acreage of 89 million acres with normal yields in 2015, ending stocks could be cut to 1.2 billion bushels as demand continues to grow. This is unsustainable in the long term unless price goes up to mitigate some of that demand. As it is now, corn demand is extremely robust.

Focus surely will be on the March 31st USDA Prospective Plantings report and the expected lower corn acreage number. It is expected that US corn acres will plunge below 90.6 million acres, which were planted last year. If that number is significantly down to 86 million, we could see a turnaround in prices on March 31st. Variations on that theme have similar direct pricing implications.

The corn futures spreads are neutral with the May 2015 to July 2015 spread at -.07 cents bushel. The noncommercial traders continue to liquidate their net long futures positions in the corn market. The May 2015 corn contract is currently trading in the lower 15% of the five-year distribution range. Seasonally, corn futures tend to trend down through mid-March.

Soybeans

Soybeans are starting to feel the true weight of the South American production numbers. The crop of 94.5 MMT in Brazil and 56 MMT in Argentina are finally coming off the fields and arriving in the ports in big numbers. Argentina is somewhat delayed both in production and with a heavy export tax. Needless to say, these beans are being met with robust demand from China. The Brazilian Real is also acting like the Canadian dollar, in that Brazilian farmers are receiving much more for their soybeans in their domestic currency based on the strength of the US dollar.

This devaluation in the Brazilian Real may cause even more soybeans to be grown next year possibly up to 6% more. That is on the bearish side. However, back in the United States we will be getting news on March 31st of the quarterly stocks report. The USDA has had soybean stock errors before in these numbers, which will be key for the immediate short term old crop pricing.

The immediate short-term outlook for soybeans is sideways based on a May 2015 July 2015 future spread of -4 cents a bushel. The May soybean contract is trading in the lower 8% of the last five-year price distribution range. Seasonally after a selloff in March, the soybean market tends to rally through early May.

Wheat

In the northern hemisphere, wheat will be coming out of dormancy. Dryness in the American southern plains is causing concern. However, there is also lots of concern in the Ukraine and Russia, where large acreage could be compromised. Intelligence from that region may be always suspect and this year, more so with the political violence in the region.

In Ontario, farmers are anticipating good things as always as the snow recedes. However, that can't take away the difficult conditions much wheat was planted in last November. The 600,000 acres of wheat in Ontario is suspect and the acreage that is kept will surely fall.

The Bottom Line (cont.)

The focus now will be on the March 31st USDA report. It is a refined surveyed based look at the actual acreage numbers, which will be planted in the United States this year. Earlier during their Outlook Forum, the USDA released a preliminary number of 89 million corn acres and 83.5 million acres of soybeans. On March 30th this is likely to change and along with the quarterly stocks report will give fodder for headlines, which will be traded by the noncommercial interests. This might make for an explosive day.

Private firms have estimated US soybean acreage to be upward toward 88 million acres. Last year in 2014 we saw a 7 million acre increase over the previous record US soybean planted area. It is unlikely that we would see the same type of increase or even half of that. Of course nobody knows and that is why there is such drama leading in to these USDA reports. March 30th report can be one of the most volatile.

In Ontario we have the same type of estimation regarding our crop acres distribution. Will Ontario farmers grow more than 2 million acres of corn? Will Ontario soybean acres be over 3 million acres? With the Canadian dollar being in the 78% range will this affect the crop mix? Of course, will the Canadian dollar fall even further making for basis appreciation throughout 2015? It is a long road ahead.

Wheat may certainly see some fireworks this year, but it is too early at this point. The situation in Russia and the Ukraine remain somewhat troublesome. This is as an aside from the wheat crop, which is compromised in the growing region. It is likely to be a focus of some market excitement this year.

Of course, weather is always the biggest consideration going forward and nobody knows what that will be. Keep in mind, if March 31st gives us a lower corn acreage number than expected, a repeat of wonderful 2014 growing conditions will be a prerequisite to satisfying a growing demand for corn which may top out at 14 billion bushels in 2015. Any weather-related dryness, bringing yield down from 2014 levels will mean a rise in price to ration demand.

The challenge for Ontario farmers is to measure all of these considerations with a particular focus on the value of the Canadian dollar going forward. The depreciation in the Canadian dollar gave an unexpected bonus on basis last fall and it continues. Hedging that foreign exchange risk is always difficult. Daily market intelligence will help in that regard. The road ahead to March 31st will likely be very focused for grain traders. After that, we're off to the races. Preparing and measuring your risks during this time is very important.

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 February-March 2015

US and World

February might be called the dog days of the winter grain-marketing season. In January we have the USDA final report on old crop and March ends with the new projections from USDA on a new crop acres. February can be a time where markets drift and the February USDA report is often seen as having minor influence on grain markets.

On February 10th the USDA released their latest world agricultural supply and demand estimates. In this report the USDA actually lowered its forecast for Brazilian soybean production by one million metric tons to 94.5 MMT. At the same time the USDA actually raised Argentinian production by 1 MMT to 56 MMT. This had been widely expected as dry weather in Brazil had cut into crop yield and the previous USDA estimate of 95.5 was always very generous. The USDA estimates for corn-ending stocks came in lower than pre-report estimates.

The USDA set US corn ending stocks at 1.827 billion bushels. This was down 50 million bushels from the January report. The USDA also cut feed and residual use by 25 million bushels, while increasing corn used for ethanol by 75 million bushels. The corn stocks to use ratio declined to 13.4%. The USDA also reduced soybean-ending stocks by 25 million bushels. The USDA also increased crushing by 15 million bushels and exports by 20 million bushels. This reflected livestock expansion and the rapid movement of exports in January. The global ending stocks for wheat came in at 197.9 MMT, which was 1.85 MMT above last month.

On Feb 12th, corn, soybean and wheat nearby futures prices were lower than the last month. Corn futures as of Feb 12th had the March 2015 futures at $3.83 a bushel. The March 2015 soybeans were at $9.83 bushel. The March 2015 Chicago wheat futures closed at $5.21 a bushel on Feb 12th. The Minneapolis March 2015 wheat futures closed on Feb 12th at $5.75 a bushel with the July 2015 contract closing at 5.79 a bushel.

The nearby oil futures as of Feb 12th closed at $51.09/barrel up from the nearby futures of last month of $46.69. The average price for ethanol on Feb 12th in the US was $1.78 a US gallon vs. last month at $1.74 a US gallon.

The Canadian dollar noon rate on February 12th was .8024 US down from the .8343 US reported here last month. The Bank of Canada's lending rate after 13 months of 1% was recently dropped to 0.75%.

Ontario

In Ontario lots of snow and extreme cold weather as of mid-February has slowed grain movement. This is only a temporary phenomenon, typical of winter, and will surely change with warmer weather. Producers are certainly busy making their spring planting decisions. Ontario acres will be in flux, as spring gets closer. How many acres of corn will be planted in 2015? Will soybeans hold the day with a possible record crop well over 3 million acres?

The basis for soybeans and wheat has moved up in Ontario since the last report. This is mainly reflected by a lower Canadian dollar. However, the corn basis has decreased in Eastern Ontario, but increased in southwestern Ontario. This is reflected in farmers refusing to sell in many cases, but also because of the declining Canadian dollar. Agricorp numbers reflect a 165 bu/acre 2014 corn crop and a 45 bu/acre soybean crop. Eventually, this large Ontario corn crop will be weighing on the basis.

The Canadian dollar has declined precipitously again down in the $.78 range briefly in February from the .8343 level last month. This is adding support to all Canadian cash grain values. It will continue to be a key factor going into March.

Old crop corn basis levels are .75 to $1.00 over the March 2015 corn futures on Feb 12th across the province. The new crop corn basis varied from .38 to $1.00 over the December 2015 corn futures. The old crop basis levels for soybeans as of Feb 12th range from $1.48 cents to $2.35 over the March 2015 futures. New crop soybeans range from $1.45 to $1.95 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on Feb 12th were $7.26 for SWW, $6.82 for HRW, $6.45 for SRW and $6.55 for Red Spring Wheat. On Feb 12th the US replacement price for corn was $5.28/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

2015 has been dull for grain markets. Sure, the January USDA report did provide some fireworks but markets have been trending sideways to down over the last several weeks. As we look ahead it's pretty clear the South American crop is weighing in. The trend lower to sideways is in a holding pattern until harvest reaches its maturity next month. Record crops from South America are close to reality.

Cutting the Brazil soybean crop from 95.5 to 94.5 MMT of soybeans by USDA is not bullish. It is true that demand for soybean seems insatiable, but at a certain point one would think that South America would run out of acres. However, that is not happening and the 2015 crop looks tremendous. Harvest will be ramping up in many parts of South America over the next several weeks.

In February the USDA will actually put out its first inclinations of 2015 corn and soybean acres. There are many private forecasters who are forecasting 88 to 89 million acres of soybeans in the United States in 2015, with corn acres dropping below 90 million. These forecasts are taking place despite the fact that in 2014 we had a 7 million acre increase in soybean acres. Much will depend on weather. We know that the American farmer loves to plant corn and if spring is warm and dry, hither the corn planter.

Wheat has not been immune from the sideways to downward movement in the grain market. Grown on every continent, except Antarctica, there is always a question and answer for wheat. When one region has a problem it is made up somewhere else. The problems in the Ukraine and Russia have served as a flashpoint for wheat prices over the last 18 months. A recent cease-fire agreement between Ukraine and Russia may impact the wheat complex. History is not on their side because this is a very volatile part of the world. The jury is yet out to see how this may affect the Black Sea wheat growing region.

Commodity Specific Comments

Corn

The USDA in their February report lowered the old crop ending stocks once again to 1.827 billion bushels. With the depth of corn supply at the present time, to some extent that figure was ignored. However, it represents another cut in ending stocks because corn demand is so strong currently sitting at 13.645 billion bushels. Clearly, this demand will not easily be tempered when the supply hiccup finally comes.

Of course, when will that be? It is the nature of agriculture to continually get more efficient boosting production. However, in 2015 the debate about new crop corn acres is surely heating up as we go into March. Any corn acreage below 90 million, which gets in trouble in the summer of 2015, may hold the key to that perceived supply disruption.

Corn futures spreads remain bearish with the March to May 2015 future spread at .08 cents. Corn futures tend to trend up through early March. The March contract is now trading in the lower 17% of the last five-year price distribution range.

Soybeans

Ever since the finish of the American soybean harvest in 2014 we've been waiting for that huge South American crop so ballyhooed. The focus will soon change to new crop acres in the United States for 2015. If the spring is warm and dry, corn acres usually win that war. Wall-to-wall soybeans may not be as sure a thing as some analysts are saying.

Soybean exports out of the United States have been above expectations. On the week previous to February 12th, the USDA said that export sales totaled 27.4 million bushels and shipments totaled 58.9 million bushels. Both of these totals were well ahead of USDA's export estimate for 2014/2015.

Despite the bearish tone, the March July futures spread is a -3 cents/bushel which is neutral. The future spreads are mostly moving sideways with the carry levels indicating a neutral commercial outlook. Seasonally, soybeans usually tend to trend up through the first week in May. The March soybean contract is currently trading in the lower 10% of the five-year price distribution range.

Wheat

It seems that wheat is almost always in bearish territory. In the February 10th USDA report the USDA pegged wheat ending stocks 197.9 MMT. This was actually an increase in global stocks and reflected increase production in Kazakhstan, Argentina, Turkey and Ukraine. The global ending stocks to use ratio is now at 27.7%. The wheat market will also be sensitive to any geopolitical tensions between the Ukraine and Russia.

In Ontario wheat prices have risen reflecting the lower Canadian dollar. Of course, at the present time what wheat is left in Ontario is underneath the snow. Much of that wheat is suspect from a very difficult planting season. There will be some conjecture going into March about how viable some of that wheat is. Approximately 600,000 acres of Ontario wheat were planted.

The Bottom Line (cont.)

As February changes into March the one constant that is staying the same is the Canadian dollar. Traveling down from $.94 US in January 2014 to the $.79 US level as of February 12, 2015, it remains the story in Ontario grains. Futures values have certainly trended down over the last 18 months, but the Canadian dollar has mitigated much of that fall in the last six months. Predictions of where the dollar might go are just that, shots in the dark. Needless to say, Ontario farmers need to keep vigil of the Canadian dollar's value on a daily basis.

At the same time the United States dollar has had the opposite effect on grains. In fact, with the US dollar climbing to seven-year highs it has put a brake on all commodity prices. Some, like oil might be more dramatic than others such as soybeans and corn. However, as the value of the US dollar goes up it hurts the demand for these commodities. With the American economy doing much better and the US Federal Reserve possibly set for an interest rate rise in June, the US dollar is looking very strong into 2015. It's variable on the currency watch, which Ontario farmers must manage.

Corn has been imported into Ontario since July 2014, but has slowed recently. Simply put, there is some conjecture about the 165 bushel/acre yield which has been reported. Elevator yields would be a good barometer, but estimating yields within grain bins is a much more inexact science. This is especially true in 2014/15 when test weights varied widely. It is not inconceivable that yields stored on farm may ultimately be 5 to 8% less than reported simply based on test weight issues. The 2014 growing year was very tough and it may come back to haunt us some more as bins are emptied out. Corn demand remains robust both in the United States and in Canada. Is not beyond the realm of possibility that Ontario cash corn prices will go back to import levels into later spring or early summer.

There are still lots of geopolitical risk in the world to affect grain prices. Russia and Ukraine will always be part of that mix in 2015. Oil prices will also be impacting economies around the world. We should not negate the positive effect that will have on China and other grain importing nations. Higher disposable income tends to be good for food demand.

Clearly, old crop has its fundamentals, but in the next few weeks traders will be jockeying for position in front of the March 31st USDA prospective plantings report. It will serve as one of the first big flashpoints of the new crop year. The challenge of course for Ontario farmers is to continue to manage their risk management strategy in front of that report. There are lots of risk on the table, but there is also lots of marketing opportunity ahead. Marketing where you are profitable and comfortable never gets old. The Ides of March will surely provide several more challenges and 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 January-February 2015

US and World

The January USDA final crop production report is one of the three most important reports of the calendar year. While the March report gives the first indication of planted acreage and the June 30th report gives the actual planted acres, the January report is always the final estimate of US crops the year previous. It is always a widely anticipated report and in 2015 it was no different.

In the January 12th USDA report, the USDA estimated 2014 US corn production at 14.216 billion bushels, which was down from its November estimate. This total production came from 83.1 million acres with a record national average yield of 171 bushels per acre. It was actually less 2.4 bushels per acre from the USDA's November estimate. The corn ending stocks for 2014/15 were pegged at 1.877 billion bushels, down from the November estimate of 1.998 billion bushels. This was despite a somewhat mysterious cut in feed demand by 100 million bushels. The corn ending stocks to use ratio came in at 13.8% compared to 14.6% in December.

Soybeans were pegged at 3.969 billion bushels, which was slightly higher than their November forecast. They were produced on 83.1 million acres harvested, with the US national average of 47.8 bushels per acre. This was record production. The USDA also left soybean-ending stocks for 2014/15 at 410 million bushels. The soybean stocks to use ratio was unchanged at 11.2%. The USDA also increased Brazil's soybean production to 95.5 MMT, which is up 1.5 MMT from their December estimate. They left Argentinian production at 55 MMT unchanged from their December estimate. US farmers cut their wheat plantings with 40.45 million acres going into winter wheat.

On Jan 16th, corn, soybean and wheat nearby futures prices were lower than the last month. Corn futures as of Jan 16th had the March 2015 futures at $3.87 a bushel. The March 2015 soybeans were at $9.91 bushel. The March 2015 Chicago wheat futures closed at $5.32 a bushel on Jan 16th. The Minneapolis March 2015 wheat futures closed on Jan 16th at $5.81 a bushel with the July 2015 contract closing at 5.98 a bushel.

The nearby oil futures as of Jan 16th closed at $46.69/barrel down sharply from the nearby futures of last month of $57.81. The average price for ethanol on Jan 16th in the US was $1.74 a US gallon vs. last month at $2.47 a US gallon.

The Canadian dollar noon rate on January 16th was .8343 US down from the .8666 US reported here last month. The Bank of Canada's lending rate remained at 1.00%.

Ontario

In Ontario there are only a few acres still left of corn after a December that was pretty wide open. Some of this corn has been left out by choice as growers are hoping for moisture reduction and possibly grade improvements. What many growers categorized as the harvest from hell in 2014 will be long remembered for the difficult harvest conditions.

Corn continues to be imported into parts of Ontario with rail shipments continuing into Quebec. This has been ongoing since July 2014 but has slowed in recent weeks. The Ontario corn crop, which had been projected at 160 bushels per acre by Statistics Canada earlier, is likely to be far lower especially when grade considerations are taken into account. This has been reflected in increased basis values over the last few months. However, underneath of those basis values has been a dropping loonie, which has formed somewhat of an artificial floor under cash prices.

The Canadian dollar in the $.83 range has certainly added to basis levels for all three grains. It is more significant to wheat and soybeans, with corn being slightly different. However, the gyrating value of the loonie will continue to support cash values to Ontario farmers.

Old crop corn basis levels are .55 to .95 over the March 2015 corn futures on Jan 16th across the province. The new crop corn basis varied from .15 to .55 over the December 2015 corn futures. The old crop basis levels for soybeans as of Jan 16th range from $1.25 cents to $1.85 over the March 2015 futures. New crop soybeans range from $1.00 to $1.61 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on Jan 16th were $7.11 for SWW, $6.69 for HRW, $6.33 for SRW and $6.41 for Red Spring Wheat. On Jan 16th the US replacement price for corn was $4.94/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The January USDA report isn't what it used to be. With live trading through the release of the report market volatility has been muted over the last few years. This year was no exception with soybeans dropping precipitously on the move, but still far from limit action. Corn fell on the news, but eventually finished the day a penny higher. So it is a benchmark for 2015 and beyond. Market structure is constantly changing and the January USDA report is reflecting that. Still, make no mistake, the January USDA reports represent record crops in the United States and prices are much less than last year.

Prices have weakened off the January USDA report, but they're also being hampered by the value of the US dollar currently at 92.9 on the index, which is acting like a parking brake left engaged on a moving car. Agricultural commodity prices have difficulty swimming upstream especially at a time of record crops. Any semblance of bullishness out of the USDA report like a smaller predicted corn yield gets washed over by a US dollar continually pounding it down. With the US economy growing rapidly and capital moving toward the US dollar because of problems in Europe and elsewhere, this trend may be a constant for 2015.

It is a unique time. For instance in the wheat market the value of the US dollar is so important for wheat prices right now. It is true that wheat is grown and harvested everywhere in the world except February. With Ontario wheat being priced off American delivery points such as Toledo the value of the US dollar constantly acts as a hammer to American export sales. This is especially true in wheat, which is grown almost everywhere. This is unlike corn or soybeans, which has their major producing areas in the United States and South America.

Hope always springs eternal on the farm. It is true that we had the lows in grain prices in the first week of October. Since then we have watched prices and basis levels in Ontario go up. However, keep in mind that the January USDA report did substantiate the record crop yields we had this past summer. The ending stocks we need to dig out from are onerous and they will definitely affect futures prices as we go forward.

Commodity Specific Comments

Corn

There is no question that 171 bushels per acre was an extremely impressive US national corn yield. This came after last year's 158.1 bu/ac and the year before at 123.1 bushels per acre. It is a testament to genetics, management and a moderate summer in the US corn belt. While the Ontario summer was cold, it prevented +80° temperatures in the US corn belt giving them their record production. With that, you might think that the price of corn might be an even greater train wreck.

Demand for corn will not be easily tempered when the supply hiccup comes. It is true that the demand actually decreased 100 million bushels from December. This may be because it had been overstated before or it may be a mistake. Needless to say, demand has some question mark regarding feed and ethanol, but it will likely grow again to even greater levels.

The March to May corn futures spread is neutral at approximately .0725 cents on January 16th. The March corn contract is currently trading in the lower 20% of the last five-year price distribution range. Seasonally, the futures market trends up through early March.

Soybeans

The January 12 USDA report was somewhat bearish for soybeans. For instance USDA increased the soybean yield, the total crop and the carryover figure remain the same of 410 million bushels. This had the tendency on report day to send soybeans lower. In fact soybeans were $.60 lower on the report week.

Another factor that came into view on January 12th was USDA raising the Brazil soybean crop to 95.5 MMT. This was 1.5 MMT more than last year and 7.5 MMT more than the year before. It is hard to imagine a Brazil crop that big, but clearly the South American soybean monster is weighing on the horizon. Dryness creeping into top Brazilian fields is a concern as of January 16th and will certainly shape market action in the next few weeks.

Future spreads are reflecting a neutral position as of January 16th, a departure from last year and more a reflection of the record crop of soybeans in the United States this year. Seasonally the soybean market tends to trend up through the first week in May. The March contract is trading currently in the lower 18% of the last five-year price distribution range.

Wheat

In the United States wheat production was actually cut in the January 12th USDA report. This may help the market as we go into 2015 especially in Ontario. However, the number of acres in Ontario was way down, especially in the southwest of the province. When wheat comes out of dormancy in the United States and in Russia and the Ukraine it will be very telling for wheat prices. Of course wheat conditions in Russia and Ukraine can be elusive. Futures values will be volatile on any rumors from there.

In Ontario there is finally some snow cover for the 600,000 acres of wheat that did get planted last fall. Producers will be hoping there are no heavy rain events in January and early February to compromise that crop further.

The Bottom Line (cont.)

The declining Canadian dollar has been the story of the last 18 months for Ontario grain prices. Going from $.94 in January 2014 into the 83 range as of January 16th has boosted cash grain values. With the March corn futures currently at $3.87, some may say it is an optical illusion regarding Canadian cash values at $4.50 a bushel. Regardless, the lower Canadian dollar always boosts Canadian cash values and remains an important part of our risk management strategy.

Looking ahead producers will need to measure and judge the Canadian dollar value for our new crop marketing plans. There has already been a precipitous drop and some might measure how much more the loonie can go. On the other hand if the US Federal Reserve does raise interest rates this year, the loonie will decline further. Capturing the right combination of futures prices and basis will continue to be our challenge.

Focus will surely turn to new crop projections as we move into February. Early projections from some private firms in the US have put corn acres at 88 million; cut from last year and soybean acres at 88 million as well, a boost up. In 2014 there was actually a record soybean planting of 83.7 million acres. This was a record at the time by a whopping 7 million over the previous record. It is hard to imagine in 2015 that we would see a jump in acres again to that degree.

That will surely depend on price going into spring. Those prices will surely depend in the next few weeks on whether South America gets the rains that they need. It is hard to imagine that their crop will get bigger, more likely smaller. In any case, the next few weeks will largely determine the price of soybeans in the short term and give us clues on some renewed estimates for US corn and soybean planting in 2015.

For Ontario farmers shivering in this cold January there is much to consider. Will the basis levels hold? Will the Canadian dollar continue on its trend down? How will the price of oil affect all of the above? Will the bearishness in the grain complex continue into spring? Or will there be an unexpected Tuesday event to come along to change everything? The road ahead is as complicated as ever and futures spreads may hold the key to understanding future price direction. South America is about to weigh in. Daily market intelligence is key. Selling where you are profitable and comfortable never grows old. The challenge is to be abreast of all the market 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 December 2014-January 2015

US and World

The corn and soybean harvest across the American corn belt has been effectively over for several weeks now. There is corn and some soybeans still to harvest in northern states, but the record harvest, which was born in their moderate summer has been locked in American bins for the time being. Interestingly enough, talk of record crops all year drove prices down to their lows in early October followed by an impressive rally into late October, November and December putting corn prices at 5 month highs as of Dec 14th. It just goes to show even in a year with record crops sometimes price has a mind of its own.

The USDA weighed in with their latest crop report on December 10th. In the report the USDA actually trimmed corn domestic stocks to just less than 2 billion bushels, while reducing soybean stocks to 410 million bushels. The corn stocks to use ratio was reduced to 14.6%. The soybean stocks to use ratio decreased to 11.2%.

On the global scale, the USDA increased corn-ending stocks to 192 MMT up slightly from last month because of a cut in Argentinian production. At the same time the USDA pegged a slight reduction of global ending soybean stocks to 89.9 MMT. This happened despite a very robust estimate in Brazil and Argentinian soybean production this coming growing season at 94 and 55 MMT respectfully. The USDA also boosted world wheat ending stocks, citing Kazakhstan and Western Canada with production increases.

On Dec 14th, corn, soybean and wheat nearby futures prices were higher than the last report. Corn futures as of Dec 14th had the March 2015 futures at $4.07 a bushel. The January 2015 soybeans were at $10.47 bushel. The March 2015 Chicago wheat futures closed at $6.06 a bushel on Dec 12th. The Minneapolis March 2015 wheat futures closed on December 14th at $6.28 a bushel with the July 2015 contract closing at 6.07 a bushel.

The nearby oil futures as of Dec 14th closed at $57.81/barrel down sharply from the nearby futures of last month of $75.82. The average price for ethanol on December 14th in the US was $2.47 a US gallon vs. last month at $2.57 a US gallon.

The Canadian dollar noon rate on December 12th was .8666 US down from the .8854 US reported here last month. The Bank of Canada's lending rate remained at 1.00%.

Ontario

In Ontario corn continues to be harvested into the middle of December in many parts of the province. Snow events in central and eastern Ontario have slowed this harvest, but generally early December weather has been very conducive to finishing much of the corn harvest in Ontario. 10 to 20% of Ontario corn may still be in the field with some areas in central Ontario having more. It has been a very difficult harvest season and one farmers would surely want to put behind them.

Corn has been harvested at very high moisture with quality issues across the province. While some areas may have quite a bit of grade 2 corn, there are many other areas that have had grades of 3, 4, 5 and sample. The Ontario corn basis has also been historically high rising through harvest to +55 over the March futures in southwestern Ontario and his highest plus $.85 in Eastern Ontario. Corn continues to be imported into the province. It is quite evident that the Ontario corn yield is down possibly at 140 bushels per acre. This combined with possibly a too optimistic outlook of planted acres at 1.9 million may be another reason why Ontario corn basis has exploded though harvest.

On farm bin space may also be a factor in this basis appreciation. More corn is stored on farm than ever before and some commercial space remains empty. This combined with a reduced crop has triggered basis. It's a change in market structure significant to Ontario grain pricing.

Underneath the difficult harvest this past fall has been a Canadian dollar falling down to the 86-point level. This has had an obvious effect on both the wheat and soybean basis and has put somewhat of a support under the corn basis. The lower dollar always translates into higher cash prices in Ontario and this has added to support throughout the fall season.

Ontario wheat acreage remains pegged at 600,000 acres. This is suspect based on the difficult fall, but there were a few more acres planted in December. It is all a theory now based on the extent and scope of this coming winter. The decrease in wheat acreage this fall will surely result in higher corn and soybean acreage in the spring of 2015.

Old crop corn basis levels are .55 to .85 over the March 2014 corn futures on Dec 14th across the province. The new crop corn basis varied from .05 to .15 over the December 2015 corn futures. The old crop basis levels for soybeans as of Dec 14th range from $1.00 cents to $1.56 over the January 2015 futures. New crop soybeans range from $0.50 to $1.20 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on Dec 14th were $7.71 for SWW, $7.31 for HRW, $6.84 for SRW and $6.60 for Red Spring Wheat. On Dec 14th the US replacement price for corn was $5.28/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

For Ontario farmers prices have changed much for the better. It is a very good thing of course and somewhat unexpected after a summer where our American friends produced both record corn and soybean crops. Of course, everything changed when futures prices started to rally in October as an American crop was coming off the fields and farmers tightly sealed their bins. The Canadian dollar also chimed in with another precipitous decline just like last year at this time. It just goes to show that even in the most bearish time, agricultural prices can sometimes rebound in the face of adversity.

There are a myriad of reasons agricultural prices have rallied off their 1st week of October lows. However, as we sit on December 14th the world has changed to some extent compared to those long days last summer. The price of oil has plummeted, losing 40% of its value since June now below $60 a barrel. This not only caused uneasiness in the commodity world, but it also changed some of the geopolitics affecting the grain trade. Rumors of Russia holding grain exports as their ruble falls have permeated the market. There were even rumors of Ukraine defaulting on corn exports to China this past week. It is enough uncertainty to send a chill through grain markets, which currently is testing ways to get the American farmer to unlock those bin doors.

Soybeans have also held their own refusing to break down fully out of their sideways range. It is no secret that record crops are growing in the soils of Brazil and Argentina right now. Weather in South America has been benign and mountains of beans loom on the horizon. Needless to say, even in this bearish environment China continues to import beans from our American friends at record levels. Of course any semblance of a crop problem in South America over the next few weeks has the potential to cause explosive price movement. Chinese buyers will certainly be watching this to determine their buying preferences. The Brazil versus United States soybean buying decision for China always causes some intriguing market action in soybeans.

The run-up in agricultural futures prices has also been taking place in an environment with significant negative headwinds. This is mainly being caused by the appreciation in the US dollar. The US dollar always acts as the world's default currency and with commodities priced in US dollars any increase in its value reduces demand for the commodity. This should continue to temper agricultural price upward movement as the American economy is doing well and investors are flocking to it, especially at a time when oil prices are dropping.

Commodity Specific Comments

Corn

Corn likes to be king when it comes to our agricultural commodity markets. As of December 14th, March corn finds itself at a 5-month high, kind of a surprise especially with the record corn crop now in the bin across the United States. Corn is also benefiting from an increase in noncommercial demand getting into the corn market. There is also strong first quarter demand that surely will show up in the January 12th USDA report.

At a certain point you would think that we will be revisiting lower prices especially with that record crop in the bin and the 2015 calendar date almost here. However, there is even talk of March corn challenging the 200 day moving average of $4.24/bushel. This late fall rally going into winter certainly points toward the January 12th USDA report as a major market mover looking forward.

The March corn contract continues to trade in the lower 21% of the five-year distribution range. Seasonally, the March contract tends to trend upward through early March. The future spread outward toward July 2015 has narrowed recently and reflects a more neutral market structure.

Soybeans

Soybean meal and Chinese demand continue to support soybean prices even at a time of record crops and very high stocks. The December 10th USDA report reflected part of this as it reduced ending stocks 40 million bushels, but this is still 4 times the soybean ending stocks which we had a year ago. With our South American friends having what looks like record crops, one might be waiting for the shoe to drop. However, as we all know production issues might sneak into the South American forecast. Demand is very strong. This has helped keep soybeans in sideways movement and from free fall.

The January 12th USDA report may hold some surprises for soybeans. Will the USDA changed the yield figure of 47.5 bushels per acre? Will they change the acres harvested? Will we continue to see strong demand for US soybeans with reduced stock numbers coming later in January? These are all questions soybean farmer's want answered, as it will have a big effect on price.

The January soybean contract is trading in the lower 22% of five-year price distribution range. Seasonally, soybeans tend to trend up through the first week of May. Soybean futures have actually grown more neutral to bullish over the last few weeks. The next target on a weekly chart as of December 14th would be $10.98 bushel.

Wheat

Despite the variation of numbers coming out of the December 10th USDA report on wheat, prices have been somewhat resilient. This is being caused to some extent by rumors of Russia limiting wheat exports as well as dryness in both Russia and Ukraine going into winter. A lack of snow cover may shorten the crop in 2015. Of course wheat has 9 lives, so maybe we are grasping at straws, but strength in this market has been impressive as of late.

Wheat prices in Ontario have also benefited from the decline in the Canadian dollar. This has pushed wheat prices back up to levels over last summer. Wheat acreage in Ontario currently set at 600,000 is likely to decrease comes spring.

The Bottom Line (Cont.)

2014 will certainly go down as having a very difficult fall harvest season. For some of us crops were planted late, making the fall season so much more difficult. On top of that the bearish market environment, caused by record crops in the United States, just made it harder. However, the world seems different now as prices have rebounded and the Canadian dollar is changing the pricing game in Ontario. Oil is in free fall and geopolitics is affecting commodity prices around the world. Volatility has been redefined once more.

There is no question the drop in oil prices of over 40% since June is having an effect on agricultural prices around the world. In fact, commodity prices in general have a difficult time when oil is dropping. An argument can be made that the agricultural sector has held its own. An argument can also be made that high oil prices are good for agriculture because of the biofuel sector. As gasoline gets cheaper, the economics of ethanol gets a little bit more compromised. Ethanol demand is still very strong but gasoline and oil demand is not. How this will work out at the end of the day may depend on whether oil can stem its free fall. It certainly will happen; it is just a question of when.

Some call it the Petro-loonie. Of course, that is the Canadian dollar, which in times of oil price free fall tends to drop precipitously. Of course this is also taking place at a time when the US dollar is rising. The oil price is declining because of reduced demand and higher supply, but also because the US dollar is rising. The Canadian dollar in this environment drops and we have certainly seen that over the last few weeks. The result is higher cash prices to Ontario farmers. It also results in a very challenging marketing environment for Ontario farmers, as cash price risk in 2014 has been huge. Looking ahead the value of the Canadian dollar will remain a key factor in pricing grain in Ontario.

As we move ahead into January, we will certainly be seeing a shift in market mentality, not only in the trading pits but also in farmers' minds. The January 12th USDA report may put an exclamation point on the 2014 grain market production numbers causing a limit move. However, since USDA reports have been released during the live trading that is less likely. In any case, farmers are likely to turn the page looking toward the new year. Pricing of the 2015 crop will certainly begin in earnest.

In Ontario producers will certainly chip away at the remaining corn in the field. This tough fall has left more than we'd like. Whether US corn continues to be imported will surely depend on a myriad of factors, our production, US basis, Canadian dollar value and demand. It is very unusual. However, this is agriculture where change is our only constant. The challenge for Ontario farmers moving into January 2015 is to keep up with that daily market intelligence. If 2014 Ontario cash grain prices taught us anything, it was to expect the unexpected. Moving into 2015, it surely will be something different. Grain market structure is changing all across the world. Selling into opportunities never grows old.

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 2014

US and World

What is a record crop is now coming off in the US corn belt. Where the old axiom has always been rain makes grain, the 2014 season might have redefined that. While we in Ontario had what we would consider a cold summer, delaying our crop maturity our friends in the United States cornbelt enjoyed moderate temperatures, especially nights that were below 80°F. This essentially boosted production substantially with the state of Illinois actually looking at a 200 bushel per acre corn statewide yield this year.

This was substantiated in the recent October 10 USDA report. In this report the USDA increased its corn production estimate to 14.5 billion bushels and it's soybean estimate to 3.9 billion bushels, both records. This is being done on 83.1 million acres of harvested corn and 83.4 million acres of harvested soybeans. We have been hearing about record crops for many weeks and months now and USDA has backed that up.

The demand is still very strong for both corn and soybeans. However, it is like a supply tsunami. The USDA increased new crop corn ending stocks to 2.081 billion bushels, which was less than what the trade had expected. The corn ending stocks to use ratio sits at 15.2%. The ending stocks for soybeans were reduced to 450 million bushels from 475, but almost 4 times higher than last year. The soybeans stocks to use ratio is at 12.6%. Wheat ending stocks in the USDA report were trimmed both for the US and world reports. The US wheat stocks to use ratio remains at 27.5%.

On October 10th, corn, soybean and wheat futures prices were lower than the last report. Corn futures as of October 10th had the December 2014 futures at $3.34 a bushel. The November 2014 soybeans were at $9.22 bushel. The December 2014 Chicago wheat futures closed at $4.98 a bushel on October 10th. The Minneapolis December 2014 wheat futures closed on October 10th at $5.53 a bushel with the July 2015 contract closing at 5.83 a bushel.

The nearby oil futures as of October 10th closed at $85.82/barrel down from the nearby futures of last month of $92.27barrel. The average price for ethanol on October 10th in the US was $2.03 a US gallon vs. last month at $2.36 a US gallon.

The Canadian dollar noon rate on October 10th was .8947 US down from the .9029 US reported here last month. The Bank of Canada's lending rate remained at 1.00%.

Ontario

In Ontario the fall is started in earnest across the province. Wet conditions in much of Ontario have delayed harvest. Some producers have struggled to get wheat in the ground. However, there is still time for this and producers are hoping for good harvest weather into the end of October and into mid-November to get things done.

Soybean yields have been quite healthy this harvest season. In some instances white mold has taken a toll on yield. Also too, as of October 11th the majority of soybeans are still in the field awaiting good harvest weather. A series of frost across the province on October 10 and 11th will likely make harvesting easier.

There has been some early corn taken off across the province. The cold summer is certainly causing issues in those harvest fields. There is a wide variability of grades with test weight issues being part of the problem. There has also been widespread frost in September in Eastern Ontario which is adding to some of the variability in quality. Some corn has not even reached black lawyer as of Canadian Thanksgiving weekend. As it is, the Ontario corn harvest this year is likely to be challenging because of the different planting dates and the cold summer making maturity such an issue. Producers need to be cognizant of this as they make their marketing plans.

We knew the crop was late and we knew that we were importing corn from the United States as we descended into October. We continue to import corn and it will remain that way until Ontario supply finally comes on stream. Basis levels will be fluid, especially if there are test weight issues in the offing.

Old crop corn (for the crop coming off now) basis levels are .30 to .55 over the December 2014 corn futures on October 10th across the province. The new crop corn basis varied from -.05 to -.10 under the December 2015 corn futures. The old crop basis levels for soybeans as of October 10th range from .38 cents to $1.14 over the November 2014 futures. New crop soybeans range from $0.15 to .62 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on October 10th were $5.71 for SWW, $5.82 for HRW, $5.32 for SRW and $5.71 for Red Spring Wheat. On October 10th the US replacement price for corn was $4.94/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The rubber is hitting the road. The October USDA report reflected some of the very good harvest results that were finding in the United States. With the projected corn yield to be 174.2 bushels per acre and soybeans at 47.1 bushels per acre we are finally getting to the enormity of what is the 2014 crop. While the moderate summer has been tremendous for corn and soybean yields keep in mind that the October report was taken from surveys in late September and early October, when few actual yield results were in. It's never over till it's over and as combines are rolling we should have a better appreciation for what is coming out of US fields.

It is hard to spin a positive forecast from these big yields in the United States. For instance, in the October USDA report, there was actually a drop in harvested corn acreage down 700,000 acres of from September. The futures market reacted by its continual spiral down, not seeming to matter in this year when everything is coming up yield positive. There is also the issue of lower test weight corn, which surely may turn up in the northern US corn belt. This may reduce the US corn yield further as time goes on. However, it is unlikely that that will be realized for quite some time possibly after the January final USDA report.

The US dollar index has also been a detriment to futures prices for all commodities over the last few weeks, currently trading at 86.031. The US dollar index is a measurement against a basket of other world currencies and as its value goes up is more difficult to pay for these commodities in the world's default currency. This serves as a drag on demand and in this current price structure is not very positive. The global economic outlook is not very good, with the exception of the American economy, which is starting to really fire on all cylinders. This is good for the US dollar and a negative for commodities going forward.

The wheat market is always difficult to measure as production is everywhere and demand is everywhere. The USDA actually pegged the global wheat ending stocks down 192.6 MMT, which is down from their September estimate. However, production increases in places like Russia this past year have kept any price nervousness at bay. Wheat is simply adding to the bearish environment in grains.

Commodity Specific Concern

Corn

The October USDA report pushed yield much higher to 14.475 billion bushels and of course this is the story that makes headlines. However, it is pertinent to know that demand was also boosted to 13.655 billion bushels, a huge number. Feed and ethanol were both boosted up at 5.375 and 5.125 billion bushels respectively. Yes, the stocks to use ratio is also up at 15.2%, but this is always good in a bearish market environment to have great demand.

Of course we all want to know if the lows are in and of course the answer to that question is nobody knows. However, seasonally and the corn price usually reaches a low in the 1st week of October, something now which is in the rearview mirror. Yes, ending stocks are projected at 2.081 billion bushels, so price will have a fight on its hands. Needless to say, if history proves out, maybe it's uphill from here. Of course the smart bet is sideways.

The future spread in the December 2014 to March 2015 corn contract is bearish at -12.75 cents. The December contract is trading in the lower 4% of the 5 year distribution range reflecting just how cheap corn is now compared to the last 5 years. Yes, commercials are bearish as there is lots of market carry into the summer. However, sometimes that carry disappears as time moves on.

Soybeans

Soybeans aren't the wildcard they used to be. The October USDA report pegged soybean production at a record 3.927 billion bushels. There are even private estimates out there over 4 billion bushels. Of course ending stocks are projected at 450 million bushels, over 4 times bigger than what we had this past year. So it's easy to be bearish with soybeans and there is likely underside to the current price.

The underside to the current price has to do with the ending stocks as well as possible future yield increases by USDA. There are also projected planting increases in places like Argentina and Brazil, which is starting planting now. This all adds to the nervousness in the soybean complex. With corn prices being low, there is also the realization there might be even more soybean acres next year in the United States. It's all a theory now, but everything is pointing at least for the moment as negative for soybeans.

The November 2014 January 2015 soybean futures spread is now somewhat neutral at -.0 $.08. The soybean market tends to trend up in the month of October possibly reflecting this neutral position. However, just like the other grains soybeans are bearish with the November contract currently trading in the lower 5% of the five-year price distribution range.

Wheat

Of all the grains in the October USDA report, wheat was the most bullish in a very bearish market situation. Cuts in the global wheat ending stocks are always welcome from a price perspective. However, the carry in the future spreads continues to weaken looking out into 2015. The Chicago wheat market usually trends up through the end of October. So maybe there is hope for a more bullish situation to develop in wheat.

Of course the question on the minds of everybody in Ontario is getting wheat in the ground. A late start to harvesting in many areas has delayed wheat planting and ground conditions continue to be a challenge. Weather into the end of October will certainly determine whether Ontario wheat acreage gets back over 1 million.

The Bottom Line (cont.)

The rubber might have hit the road, but as we all know in the farming business changes are only constant. It's the same for agricultural commodity prices. Yes, this is a very bearish market environment. The coolish summer has been the prescription for record grain production, but keep in mind it will not stay this way. The agricultural economics inherent in the grain complex will determine shifts in plantings and production. Then add weather to the mix, and marketing opportunities will surely come along. Stay positive, don't let short term price projections cloud your long-term future.

As a huge mitigating factor in grain price projections in Ontario this year continues to be the Canadian dollar trading under $.90 US. This essentially is cushioning some of the optics behind the price decline and it actually may continue raising cash price bids in Ontario. This is also a big factor when determining hedging strategies and price goals. With the US dollar surging, pressure will continue on the Canadian loonie.

The cash price environment in Ontario will also surely be affected by the quality of this year's corn crop. For instance with frost hitting much of Eastern Ontario's corn early the vestiges of low test weight corn are very real. With the lateness of the crop in southwestern Ontario, some of the same test weight issues may surely result in lower grades. In this market environment there may be cash price anomalies offered for corn and on the flipside discounts applied. Producers need to have a strategy to deal with cash bids. A strong warm month of weather would mitigate much of this. However, this is Canada and although it's happened before, its unlikely.

It surely is a fluid market environment, but different in one significant way, that is the anchor of corn and soybean ending stocks. They are so significant, we can't “demand” our way out of them. There will be no war for acres next year because end users know the supply will be there unless there is a drought tsunami. Normal years will begat normal years. It'll take an act of God on the weather front to lower supply. Eventually, that will happen.

The immediate challenge ahead in Ontario is to get our crop in the bin and wheat in the ground. In many parts of Ontario, its been a late start to harvest and with that comes many marketing opportunities. Early corn harvest has been one of them. It's not easy this fall, its been several years since we've seen these lower prices. Precision focus on cash bids and futures markets on a daily basis will help give context to our marketing decisions. There will be opportunities ahead. The hard part is measuring the market factors to capture those moments. We got here with our eyes wide open and its no time to shut them now.

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.