Market Trends Report for July-August 2015

US and World

As the calendar turns into late July and early August US crops continue their march toward harvest. July and August weather are critical for corn and soybean production. The 85.1 million acres of soybeans and 89.2 million acres of corn are damaged from their peak potential as they go into this critical weather. Heavy rains with record rainfall amounts have taken their toll. The question is, how much of a toll have crops paid and will summer weather provide them some opportunity to recapture some of that record potential?

On July 10th the USDA chimed in with their latest crop production report. The USDA actually lowered old crop ending stocks by 97 million bushels to 1.78 billion bushels. USDA also lowered the soybean ending stocks by 72 million bushels pegging them at 255 million bushels. On the new crop side of the ledger the USDA maintained their corn yield at 166.8 bushels per acre and soybeans at 46 bushels per acre. The new crop corn production estimate is at 13.53 billion bushels with a 1.6 billion bushel ending stocks. Soybeans are projected at 3.89 billion bushels with ending stocks coming in at 425 million bushels. The USDA also lowered all of its winter wheat production 3% from its June 1 forecast pegging it at 1.46 billion bushels.

The July report was somewhat overshadowed by the wet weather events over the July 4th weekend. The market had been buoyant on that news and the report did not really change anything. Crop conditions published by the USDA actually improved over the last two weeks with futures prices settling back a bit. The August report may surely have reduced yield projections from the USDA reflecting some of the weather problems. There'll also be results from the resurvey of soybean acres in Missouri, Arkansas, Texas and Kansas.

On July 17th, corn, soybean and wheat nearby futures prices were lower than the last report. Corn futures had the September 2015 futures at $4.20 a bushel. The December 2015 corn futures were $4.31/bushel. The August 2015 soybean futures were at $10.14 bushel. The September 2015 Chicago wheat futures closed at $5.54 a bushel. The Minneapolis September 2015 wheat futures closed at $5.67 a bushel with the September 2016 contract closing at $6.13 a bushel.
The nearby oil futures as of July 17th closed at $50.89/barrel down slightly from the nearby futures of last month of $58.56/. The average price for ethanol on June 30th in the US was $1.94 a US gallon vs. last month at $1.91 a US gallon.

The Canadian dollar noon rate on July 17th was .7693 US down from the .8017 US reported here June 30th. The Bank of Canada's lending rate dropped to 0.50%.

Ontario

In Ontario the soft wheat harvest has commenced in parts of Chatham Kent and Essex County. However, ripening of the crop has been slow, as cool cloudy weather has impeded maturity. The grades at this early stage have been satisfactory. Wheat harvest is expected to ramp up in the next few weeks across the province. Corn and soybeans, which have been damaged by water throughout much of the province, continue to rebound with warmer weather. Much of Essex County did get planted before the crop insurance deadline of July 7th. However, there were many fields left unplanted, which may mean September wheat planting this year in Essex.

Basis levels in Ontario actually improved greatly over the last several weeks as the Canadian dollar continues to lose strength. Old crop corn exports out of Ontario have been mitigated by the uncertainty surrounding Greece. However, producers with old crop are enjoying better prices. Depending on weather moving ahead, it is likely that the 2.055 million acres of Ontario corn will produce 300-330 million bushels of corn this fall. It will set up the classic historical situation where corn is exported into the United States with a harvest low basis. Time will tell.

The soybean crop looks tough throughout much of South and Southwest Ontario, as heavy rains have stunted growth in many locales. However, in Eastern Ontario and in select other places through the province the soybean crop looks very good. So it is variable, in fact, beans look like beans. August is always a critical month for Ontario soybeans. Where soybeans are the great liars with regard to their yield, at the end of the day they always tell the truth. Ontario farmers are certainly hoping for good soybean weather into August.

Old crop corn basis levels are .55 to $1.20 over the September 2015 corn futures on July 17th across the province. The new crop corn basis varied from .45 to .90 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.97 cents to $2.40 over the August 2015 futures. New crop soybeans range from $2.05 to $2.44 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on 17th was $8.76 for SWW, $7.39 for HRW, $6.68 for SRW and $7.01 for Red Spring Wheat. On July 17th the US replacement price for corn was $5.70/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The psychology of the grain market has changed, but how much and for how long? Hot and dry usually trumps wet weather when it comes to crop damage. In many ways with futures prices retreating from recent highs many analysts might be asking themselves if the weather card for 2015 has been played out? Simply put, it looks like the specter of record yields have been taken away for this year. July and August weather will determine how and if some of these crops recover.

The US dollar has been strong in the last two weeks and this has made for additional gains in prices somewhat difficult. The wheat market has taken somewhat of the brunt of US dollar movement because of so many competitors in the world market versus American wheat. As the US dollar goes up, buyers switched to other sources. This is much more difficult with corn. Needless to say, with the problems that Europe is having with Greece, the US dollar is benefiting. That is always hard for grain futures prices.

It's an old cliché, but weather this time of year trumps almost everything. Yes, we had a period of tremendous crop damage from too much water, but July and August still mean so much. Corn is 69% good to excellent and soybeans were 52% good to excellent in the week ending July 17th. These ratings were somewhat better than expected and to some extent it proves the point that not every acre was drowned out and those that weren't in fact may be getting better. There is a great balancing act this summer with regard to the good and bad parts of the crop in the US corn belt. Crop weather moving ahead into September will significantly determine the size of what still is a very big crop.

South America remains a very important supplier to the world and the big competitor to our American friends. With prices somewhat higher rumours of South American corn and soybeans landing into the American Southeast have been a factor. China has also imported 35% more soybeans from Argentina than they did a year ago. This might say more about Argentinian politics versus Chinese demand, but clearly China has multiple suppliers for soybeans. Corn is a different matter. Domestic Chinese corn prices are higher than imported values and US corn may be needed in increasing numbers to fill a void. However, the second crop of corn from Brazil will mean for stiff competition.

Commodity Specific Comments

Corn

The state of the US corn crop remains in flux, but may be stabilizing from the end of the 30-day monsoon period, which hit in June. The USDA average yield of 166.8 may surely change in the August USDA report. The question is, by how much? Analysts differ on how much lower, but probably by just a few bushels. This is not the 2012 crop disaster event. USDA dropping the corn yield to 161-163 bu/acre would be more likely.

Corn demand remains strong, but no more at record demand levels, which was reached in June. A 25 million bushel decrease in exports in the July USDA report may reflect a slight weakening of demand. Still, 13.735 billion bushels doesn't lie.

The December 2015 March 2016 corn futures spread is -.1025 as of July 17 in this reflects a more neutral stance for futures. The December contract is trading in the lower 26% of the past five-year price distribution range. Seasonally, corn futures tend to trend down to the first week of August.

Soybeans

Crop condition reports from USDA will be very telling for the US soybean crop going into August. Also too, the August USDA report will reflect updated acreage numbers not seen previous. This may hold some surprises for soybean prices moving ahead. Needless to say, August rains usually make soybeans and for those acres, which are left in good standing, it's the same story again.

Although Chinese demand still rings very strong, the stock market meltdown in equities over the last month has caused some nervousness in their economy. It is only another variable to consider with the world's largest soybean consumer. Any hiccup like this within the Chinese economy will always cause some angst in the soybean complex.

Soybean futures spreads remain bullish with the November 2015 January 2016 future spread as of July 17th at -.06 cents. Net long non-commercial futures positions in soybeans have increased over the last several weeks. Seasonally soybean futures tend to trend up through early September. The August soybean contract is currently trading in the lower 12% of the past five-year price distribution range.

Wheat

The wheat market has been tempered by the high value of the US dollar and the problems currently seen in Greece and the Euro zone. Hot temperatures have also impacted the wheat crop in Europe. American wheat continues to have problems pricing it competitively in world markets.

In Ontario it's all about harvesting the 600,000 acres of wheat in the field. Prices have improved over past harvests as the Canadian dollar has had tremendous positive effects on cash prices. Sometimes the planets align with regard to wheat prices, yield and quality. Ontario farmers will surely be hoping for that this harvest season.

The Bottom Line (Cont.)

One of the pillars of marketing grain in Ontario is measuring the Canadian dollar movement and how that affects basis levels going forward. There is no question with the Canadian dollar reaching the 76-cent level on July 17th, that cash price opportunity is apparent for Ontario producers. It's always fickle to predict and especially fickle to combine it with rising futures prices to maximize revenue. Clearly though, in the summer of 2015 the lower Canadian dollar is creating opportunity to market grain effectively.

In Europe, Greece defaulted on loans to the International Monetary Fund, but also later agreed to another bailout package from the European Union. It is a difficult arrangement, but may serve as an example for what's ahead for other countries like Spain, Ireland and Italy. From a grain complex perspective this debt problem in Europe continues to cause nervousness in pricing. Nobody wants to get caught selling grain to buyers who may not be able to pay in hard currency. The quicker that Europe resolves these situations the better.

In Ontario crops mimic to some extent the problems in the US Eastern corn belt, but not as bad. It is likely that the Ontario corn crop will approach last year's yield level but fall slightly short. With the increased acreage in 2015 over 2014, Ontario could be a net exporter of corn all next year. However, weather will yet have it say about that. August rains will surely weigh in on Ontario soybeans as well.

The challenge for Ontario farmers is to continue to market their grain at profitable levels. The Canadian dollar will surely continue to be a daily watch. USDA weekly crop conditions reports as well as the August crop report will surely be telling for price movements. Of course, there is always the possibility of a black swan event incubating in the background. This is agriculture and the challenges continue to evolve.

Post-June 20 Special 2015

US and World

It has been a time of changing dynamics in both the United States and Ontario farm country. Heavy rainfall across the southern and eastern corn belt in the United States has completely changed the psychology and the grain market as we head into July. Parts of Illinois, Indiana, Missouri, Iowa and Ohio received more than 10 inches of rain in June throwing into doubt the record crop potential in those very important states. The grain market started to react to this threat to supply in late June, just in time for the very important June 30th USDA report.

The very wet weather in the United States trumped the impact of the June 30th USDA report early. For instance, corn in the top 18 producing states was 68% good to excellent on June 29th having dropped from 75% on June 8th. In Indiana, the corn was rated 46% fair to poor. Soft red winter wheat was also being blasted by wet weather causing serious quality concerns. With the release of the USDA report on June 30th of actual planted numbers based on a June 1st survey and quarterly stocks, the stage was set for explosive market action.

On June 30th, USDA pegged corn acreage at 88.9 million acres, which is the lowest corn acreage figure since 2010. The USDA put quarterly corn stocks as of June 1st at 4.45 billion bushels with soybeans pegged at 625 million bushels. Soybean acreage was set at 85.1 million acres, which represents a record acreage. The lower corn and soybean stocks were seen as bullish for the market and with the new crop seemingly underwater across the American corn belt it led to explosive market action on report day. Corn finished up the $.30 limit, while soybeans were up $.53 and wheat was up $.34 on the day, one of the biggest days in a few years.

On June 30th, corn, soybean and wheat nearby futures prices were higher than the last report. Corn futures had the August 2015 futures at $4.22 a bushel. The December 2015 corn futures were $4.31/bushel. The August 2015 soybean futures were at $10.49 bushel. The September 2015 Chicago wheat futures closed at $6.15 a bushel. The Minneapolis September 2015 wheat futures closed at $6.37 a bushel with the September 2016 contract closing at $6.54 a bushel.

The nearby oil futures as of June 30th closed at $58.56/barrel down slightly from the nearby futures of last month of $59.96/. The average price for ethanol on June 30th in the US was $1.91 a US gallon vs. last month at $1.88 a US gallon.

The Canadian dollar noon rate on June 30th was .8017 US down from the .8127 US reported here June 12th. The Bank of Canada's lending rate remained at 0.75%.

Ontario

In Ontario heavy rains have damaged crops throughout the province. The crosshairs for this heavy rain has been in Essex County where record rainfall in May and June has thousands of acres not planted as of June 30th. Agricorp has extended the crop insurance deadline for planting crops there until July 7th. Across the rest of southern Ontario heavy rains have hurt crops, but of course there is still a long season ahead of us. Producers as of June 30th are certainly hoping for summer heat and the moderation of heavy rainfall events.

Statistics Canada has weighed in pegging Ontario corn acreage at 2.055 million acres. Soybean production is pegged at 2.93 million acres with Quebec corn production at 920,00 acres and soybeans at 778, 000 acres. At this early stage it is difficult to tell how basis will be affected with that large corn acreage figure in Ontario. With the crop somewhat damaged from wet weather it would be difficult to achieve the same yields as 2014. July and August weather will surely be key.

For the 600,000 acres of wheat in Ontario, July will be the month when harvest will commence. Unfortunately, the soft winter wheat crop has taken unusually high punishment from heavy rains across Ontario. This will surely have an impact on quality. In fact, across the Eastern corn belt, much of the soft red wheat has been heavily damaged from excessive rainfall. Wheat prices have spiked much higher under these concerns. Ontario producers will surely be poised to take advantage of this.

Old crop corn basis levels are .50 to $1.05 over the September 2015 corn futures on June 30th across the province. The new crop corn basis varied from .25 to .90 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.78 cents to $2.30 over the August 2015 futures. New crop soybeans range from $1.50 to $1.97 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on June 30th was $9.32 for SWW, $8.26 for HRW, $7.60 for SRW and $7.78 for Red Spring Wheat. On June 30th the US replacement price for corn was $5.47/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Oh, how things change! For most of the spring grain futures prices have been going down or sideways and only two weeks ago it looked like more of the same unless there was fresh news. Of course, the fresh news came in copious amounts of rainfall slamming into young crops in the American Midwest causing much damage. Two weeks ago the wet weather had not turned into a flood as yet, but clearly is caught the market's attention. Leading into the June 30th report, this new psychology was threatening to trump the USDA numbers. It did that in spades and when USDA cut their quarterly stocks, the world for grain is a different place now.

The road ahead of course involves two of the biggest production months of the crop year, July and August. It's often said that July makes corn prices and August makes soybean prices as pollination takes place in July and soybean set their pods in August. It is the same this year, except for the fact that much of the crop is damaged in the big “I” states of Indiana, Illinois and Iowa. Add to the fact that only 62% of Missouri's 5.65 million acre soybean crop had been planted as of June 29th, we've got a big problem in our production fields. The bears that controlled the day in the grain market over the last several months have been knocked down a peg. This crop is going into July and August with one or two hands tied behind its back.

Of course, it wasn't supposed to be this way. Everything was leading up to benign weather boosting supply to unprecedented levels masking the record demand that continued unabated. US Corn demand is currently at 13.760 billion bushels, a record. It all great as long as you have record corn crops produced. Now, there's been a bit of a production hiccup and that demand will not be easily tempered. Noncommercial players in the grain market are dropping their short positions and getting long.

There are still a myriad of other factors affecting our grain markets such as the value of the US dollar, the softening in the Chinese economy and of course the macro economic problems that our European friends are having with Greece. These are important factors for grain demand, but at the moment with the 2015/16 crop in a bit of trouble in the United States it's taking the backstage. Acreage, yield projections and weather in the United States will certainly trump those concerns in the next several weeks.

Commodity Specific Comments

Corn

It is difficult to project how excessive rainfall does affect corn production in the United States. Yes, we've all seen the optics of too much rain making for yellow streaks in corn. However, wet weather is usually not as damaging as “hot and dry”. USDA predictions of a 166.8 bu/acre corn crop now seem a bit dated. However, is 163 bu/acre more like it, 160 or 155 bushels/acre? This will certainly be top drawer in the next few weeks.

Will the 88.9 million acre figure released by USDA on June 30th hold true or will it be cut in future reports. This combined with the continued record demand has the potential to cut ending stocks down to the 1.5 billion bushel figure. This old crop ending stocks figure will become the beginning stocks figure for the following year so it is incredibly important what happens. As of now, it looks like supply is disappearing much more than expected.

The carry in the December 2015, March 2016 corn futures spread is at -.0925 cents, which reflects a neutral to bullish position in corn. Seasonally, the five-year seasonal index generally shows corn trades down through early July. The December contract is currently trading in the lower 20% of the five-year price distribution range.

Soybeans

We all know that soybeans don't like wet feet, especially when they are young. Missouri, Arkansas, Kansas and several other states have many soybean acres yet to get in and weather will determine whether that happens. Certainly, final planted acreage in soybeans will be important this year with the crop damaged. Demand remains very high.

This demand is certainly having an impact on any cut in soybean stocks. With 625 million bushels left as of June 1st, a normal fourth-quarter demand could easily send ending stocks below 300 million bushels or farther. Much will depend on whether all the soybeans get planted and of course that weather in August.

The November 2015 January 2016 soybean futures spread is bullish at -.05 cents. Noncommercial demand for soybeans has turned up. Seasonally, soybean futures tend to tread down through early July. The August contract is trading in the lower 11% of the past five-year price distribution range.

Wheat

Wheat has been somewhat of the poster boy with regard to market bullishness. Of course, it is a bit of a double edge sword as the extremely wet conditions at the time of pre-harvest in the United States has likely damaged the wheat crop. This is put much skittishness into the wheat market complex and for those who have good wheat the price spike is very good news.

Soft red winter wheat will likely be taken off in Ontario within the next 10 days. It will continue into July and Ontario producers are certainly hoping any disease concern is no different than any other year. We can expect much higher acreage of Ontario wheat this fall as spring crops got off to an earlier start in 2014. This should provide a window for a plus 1 million acres winter wheat crop this fall.

The Bottom Line (Cont.)

There has definitely been a change in psychology for the grain markets coming out of the June 30th USDA report. However, this time around in 2015 it was more about crop damaging weather than it was acreage and quarterly stocks. Simply put, any hiccup in supply in 2015 was going to send prices higher. Throughout the last several months there has been no hint of that in production fields but the monsoon in the corn belt over the last month has changed all that. The challenge now will be to understand just how that will manifest itself in future price action.

We have in place all of the older factors in the grain markets that are still in play. As of June 30th, Greece has defaulted on their debt to the international monetary fund putting them in the same category as Zimbabwe, Sudan and Argentina. This certainly is bad for the Euro and good for the US dollar and who knows what else for the greater European economy. The bottom line is this instability in Europe will have an effect on currencies and the demand for commodities.

In Ontario, this demand for currencies manifests itself in the value of the Canadian dollar, which is incredibly important for our cash grain prices. Where the US dollar goes, our Canadian loonie usually goes the opposite. As futures prices go up in a bullish market environment the foreign exchange calculation in our cash prices is accentuated. We should be concerned about grain futures prices, but also about the value of the Canadian dollar. Yes, this is the default criterion for Canadian grain growers. In a rising bullish market, it gets even more important.

It brings us back to volatility. We know there has been a change in our grain markets, but how much of a change in what will happen going forward? For instance, the USDA has pegged corn production at 166.8 and soybean production at 46 bushels per acre. On July 10th, we may get our first indication of how USDA thinks that may be changing. At the same time, market weather is so important and even more accentuated under the current circumstances. This will lead to much more violent price movements up-and-down. It will surely challenge your marketing acumen.

In Ontario we are headed into July and August with hope for very good wheat harvest and some weather kindness for corn and soybeans. It would also be good to see Essex County get planted. Fresh market news of damaging Midwest rains has certainly spurred prices to higher levels over the last few weeks. That said there are never any guarantees in this agriculture business. Daily market intelligence will remain key especially with our two-pronged look at grain futures and Canadian dollar values. The challenge will remain for Ontario farmers to market where they are comfortable and profitable. Standing orders for grain will remain key during this critical time.

Market Trends Report for June-July 2015

US and World

In the United States corn and soybeans continue to impress as we head into the later parts of June. For the week ending June 8th, the USDA rated corn conditions as 75% good to excellent in the largest producing corn states. Soybeans were rated 69% good to excellent, with 79% of US soybeans planted. Benign weather has helped these crops get off to an excellent start. The big difference in 2015 has been wet weather in the US corn belt. How this will manifest itself on corn and soybeans yields at this early stage is anybody's guess.

On June 10th, the USDA released its latest USDA crop production and supply and demand report. The June report is usually a preamble to the bigger report later in the month. In the report the US estimated US corn production at 13.63 billion bushels, with an average yield of 166.8 bushels per acre. They estimated old crop ending stocks at 1.876 billion bushels, which was up 25 million bushels because of a cut in ethanol use. The estimated new crop ending stocks were pegged at 1.771 billion bushels. The old crop stocks to use ratio is now a 13.8% and the new crop ratio is at 12.9%.

USDA estimated the total soybean production in the United States would be 3.85 billion bushels with an average yield of 46 bushels per acre. The USDA actually lowered its old crop ending stocks by 20 million bushels to 330 million bushels. The new crop ending stocks were pegged at 475 million bushels, down from the 500 million predicted in May. USDA reported all wheat production near the high end of pre-report estimates at 2.121 billion bushels.

On June 12th, corn, soybean and wheat nearby futures prices were lower than the last report. Corn futures had the July 2015 futures at $3.53 a bushel. The December 2015 corn futures were $3.69/bushel. The July 2015 soybean futures were at $9.40 bushel. The July 2015 Chicago wheat futures closed at $5.03 a bushel. The Minneapolis July 2015 wheat futures closed at $5.61 a bushel with the September 2015 contract closing at $5.70 a bushel.

The nearby oil futures as of June 12th closed at $59.96/barrel up slightly from the nearby futures of last month of $59.69/. The average price for ethanol on June 12th in the US was $1.88 a US gallon vs. last month at $1.99 a US gallon.

The Canadian dollar noon rate on June 12th was .8127 US down from the .8326 US reported here last month. The Bank of Canada's lending rate remained at 0.75%.

Ontario

In Ontario good planting weather has helped get much of the crop in and growing as of June 12th across the province. The one exception is Essex County where unusual above-average precipitation has stymied planting progress. As of mid-June much of West Essex still needs an extended dry period to get all soybeans planted.

Aside from Essex County, the crop in the rest of the province is somewhat ahead of schedule and doing well. Heavy rains have inundated much of southwestern Ontario after very dry start in May. This damaging precipitation has been variable and regionally based in many production areas. Side dressing of nitrogen and spraying have surely had its challenges.

With frost and wet weather giving us fits this spring, basis values have largely gyrated on a wobbly Canadian dollar. This has been especially true for soybeans and wheat. With approximately 2.1 or 2.2 million acres of corn planted early and growing well a 350 million bushels plus crop may be coming off this fall. With Ontario corn demand approximately at 325 million bushels it will set up for some basis decreases in the fall. Of course, much will depend on Ontario weather and ultimate yield. With the crop planted earlier, at this early point it looks better than 2014.

Old crop corn basis levels are .55 to $1.00 over the July 2015 corn futures on June 12th across the province. The new crop corn basis varied from .20 to .85 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.47 cents to $1.70 over the July 2015 futures. New crop soybeans range from $1.35 to $1.50 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on June 12th was $7.76 for SWW, $6.67 for HRW, $6.12 for SRW and $6.85 for Red Spring Wheat. On June 12th the US replacement price for corn was $4.68/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Crop prices have been going sideways and down for several weeks now. There have been short periods of rallying followed by small declines over periods of time. You might call it treading water, but a big crop and big carryouts are dialed in almost everywhere. As we look toward the June 30th USDA actual planting report, we can expect more of the same unless there is fresh news that day.

The weather in the American Midwest has been uneven. For instance heavy rains across much of the US corn belt especially at this time a year will challenge the idea, rain makes grain. 75% good to excellent for corn at this time of year doesn't lie, but too much water can hurt crop yields. All of the soybeans are not planted yet, simply put, there is much production risk ahead that may affect crop prices. A June 30th USDA acreage surprise followed by subsequent hot and dry may be the stimulus to make grains go higher.

As it is on June 12th, the market has dialed in these lower prices based on crop weather, carryouts and the situation around the world. The June USDA report substantiated these large carryouts of grain in both old crop and new crop. Also, the Brazil second crop is quite huge and carryouts were increased there as well. We are already trading these numbers. Sideways may be the order of the day until July and August weather determines who will win.

The US dollar is always a large determinant on commodity futures price direction. After rising through the 100 level on the index on April 13 it plummeted down over the next month to 93 before rising to 97 before settling now to 94.987 on June 12th. As the dollar goes down it is a stimulant for grain futures and the opposite as it goes up. At the 94-index value it is still much higher versus last July when it had a value of approximately 80. It will remain a key factor for grain futures price direction.

Commodity Specific Comments

Corn

Heavy rains had fallen across much of the 89.2 million corn acres in the United States. However, it is always difficult especially at this early time to determine whether that is detrimental to future crop yields. The question is as we lead up to the June 30th USDA report, will that 89.2 million acre number change and in which direction. The conjecture is that all the corn did not get planted. The June 30th corn planted acres number will be telling for that.

Despite changes from the EPA that may be coming with regard to the ethanol mandate, ethanol margins at the present time remain quite profitable, which bodes quite well for continued corn demand. 13.760 billion bushels of demand does not lie. If there is any hiccup in supply, this demand will not be easily tempered.

The July 2015, September 2015 future spread on June 12th was -.0575 cents, which is considered neutral. Corn prices are cheap, considering that the July contract is trading in the lower 5% of the last five-year price distribution range. Seasonally, the July contract tends to trend down through early July.

Soybeans

Market bears have been solidly placed in the soybean market for quite some time now. It is hard to find hope, but it may be coming in the soybean meal market. There is strong commercial interest in soybean meal in the United States and Brazil has been exporting meal to South and Southeast Asia to replace a lack of meal from India. With burdensome supplies almost everywhere, we'll take it.

As of June 12th there are still about 20% of the US soybean crop yet to be planted. The forecast is for wet weather in places like Kansas and Missouri, where many of the soybeans are intended. That may result this year in some soybean acres not being planted.

The July 2015, August 2015 soybean futures spread is bullish at +.185 cents on June 12th. This reflects an increasingly bullish market picture for old crop soybeans. The July contract is trading in the lower 5% of the last five-year price distribution range. Seasonally, the soybean futures market tends to trend down through early July.

Wheat

Wheat futures have enjoyed some pretty good times lately reaching their 200 day moving average before falling back this week. Russia and the Black Sea region remains a key player in the wheat market. The possibility of an export tax on Russian wheat is very real currently. If this comes to fruition limiting Russian exports, North American wheat may benefit greatly. That region remains very volatile geopolitically.

Ontario's 600,000 acres of wheat is heading out with fungicide application being done across the province. This has been a challenge as wet conditions have made for different types of application. Wet weather has certainly been an incubator for disease. Producers will be hoping for dry and warm days ahead.

The Bottom Line (cont)

Do we have a reason to be positive as we consider the June 30th USDA actual planted acreage report? After that, do we have a reason to be positive for prices as we go into July? Or, as part of our management plan do we simply buy put options and let the chips fall where they may? Well, risk management never gets old and there are myriad of answers to all those questions. Hot and dry weather in July will define much. Simply put, the July 4th weekend is always a litmus test for when the US crop is made.

Prices are cheap especially considering where we are over the last five years and much can be said about buying grain when it is below the cost of production. This is reflected in huge demand numbers, which continue underneath the seemingly bottomless supply as long as mother nature plays nice. In fact, if demand continues to grow and supply matches it, it is likely there will be even less corn acres in 2016. Prices should improve then. Of course, the quintessential question is will mother nature play nice? There was really never any definitive answer to that.

In Ontario we have had our production problems, but we are still set to produce a 350 million bushel plus corn crop based on average yields. This should have the effect of the classic low harvest basis with Ontario corn being shipped into the United States and being imported back later. Of course, much will depend on our crop size moving forward. The Canadian dollar will remain the testosterone below Ontario cash prices.

After reaching a low of .7780 US on March 18th, the loonie rebounded to .8330 on May 14th and has since retreated down to .8127 US on June 12th. This is a far cry from where we were a year ago with a 93 sent Canadian dollar. Simply put, this lower Canadian dollar as well as the weekly gyrations in the loonie cause a wide variation in Ontario cash prices for grain. It is incredibly important to keep abreast of our dollar movement as basis values swing wildly, especially for soybeans and wheat. It is likely to continue throughout the year.

The challenge for Ontario farmers is to hedge accordingly both in front and after the June 30th USDA report. As reports go, the June 30th report is one of the biggest and will reset the goalposts for grain fundamentals this year. After that, the July 4th weekend often serves as a flashpoint for traders deciding whether the crop is made. Short-term and long-term weather forecasts at that time can be critical to price direction. Standing orders for grain can be very useful tool at this very volatile pricing time. Marketing where you are profitable and comfortable never gets old. Patience can also be key. Daily market intelligence will remain, a very important task for Ontario grain growers.