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.

Market Trends Report for May-June 2015

US and World

Planters have been rolling across both United States and Eastern Canada over the last month. Benign weather across the American corn belt has resulted in tremendous planting progress in both corn and soybeans. The general market bearishness, which has been reflected over this time, was maintained because of the good weather in the United States. As of May 11th, 75% of US corn had been planted compared to 57% of the previous five years average. US soybeans were 29% planted compared to the previous 5 year average of 24%.

As planters rolled, the USDA chimed in with its May 12th USDA crop report. The May report gave us our first indication of new crop ending stocks. In the May report the USDA forecasted farmers would produce 13.6 billion bushels of corn with an average of 166.8 bushels per acre in 2015/16. The USDA sees 2015/16 corn ending stocks declining to 1.746 billion bushels. This is taking place when corn demand has grown to 13.760 billion bushels in 2015/16, another record. The ending stocks to use ratio for 2015/16 came in at 12.7% compared to 2014/15, which was 13.6%.

In the soybean complex the USDA boosted 2015/16 ending stocks to a whopping 500 million bushels. This was up substantially from the 350 million bushels for 2014/15. The USDA forecast soybean production to come in at 3.850 billion bushels, which was down 119 million bushels from the 2014 crop. USDA also forecasted an average yield for soybeans at 46 bushels per acre. The US soybeans stocks to use ratio for 2014/15 came in at 9.4%, while the 2015/16 stocks to use ratio came in 13.2%. The USDA also left Brazilian production at 94.5 MMT, but boosted Argentinian production to 58.5 MMT. However, in 2015/16 the USDA expects Brazil to produce 97 MMT of soybeans and Argentina 57 MMT. US total wheat production is set at 1.47 billion bushels, up 7% from last year.

On May 15th, corn and soybean nearby futures prices were lower and wheat higher than the last report. Corn futures had the July 2015 futures at $3.65 a bushel. The December 2015 corn futures were $3.82/bushel. The July 2015 soybeans were at $9.53 bushel. The July 2015 Chicago wheat futures closed at $5.11 a bushel. The Minneapolis May 2015 wheat futures closed at $5.61 a bushel with the September 2015 contract closing at $5.72 a bushel.

The nearby oil futures as of May 15th closed at $59.69/barrel up from the nearby futures of last month of $55.74/. The average price for ethanol on May 15th in the US was $1.99 a US gallon vs. last month at $1.90 a US gallon.

The Canadian dollar noon rate on May 15th was .8326 US up from the .8177 US reported here last month. The Bank of Canada's lending rate remained at 0.75%.

Ontario

Planting progress in Ontario has been substantial as of May 15th across the province. There may be a few exceptions with Essex County being one. Essex County has been wet for most of the spring and producers there are anxiously waiting to get into the fields. There may even be some cutback of corn acres in Essex County this year because of the late calendar date. In the rest of the province corn planting is close to complete and soybeans are rolling in everywhere.

In Ontario Statistics Canada is projecting corn acreage at 2.1 million acres and soybeans to actually drop to 2.9 million acres this year. With corn prices down this is somewhat of a surprise, but good planting weather may see this come to fruition. Depending on weather moving forward, this may shape up as another year where Ontario produces a record total corn production.

That production may be weighing on basis levels now and in the future across Ontario. Basis levels have retreated for corn, soybeans and wheat over the last month as the Canadian dollar has found renewed strength, actually gaining a nickel against the US greenback over the last two months. This foreign-exchange calculation was very favorable to producers last year and remains so. However, the loonie goes up and down and in the last eight weeks it showed us how cash prices will depreciate with a more aggressive Canadian dollar.

Old crop corn basis levels are .45 to .88 over the July 2015 corn futures on May 15th across the province. The new crop corn basis varied from .10 to .85 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.35 cents to $1.68 over the July 2015 futures. New crop soybeans range from $1.05 to $1.40 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on May 15th was $7.65 for SWW, $6.69 for HRW, $5.91 for SRW and $6.33 for Red Spring Wheat. On May 15th the US replacement price for corn was $4.78/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

With standing orders in place and planters rolling over the last month sometimes marketing can take a step back. However, sometimes not very much happens and that was the case in the futures market over the last month as corn and soybeans traded sideways to down and wheat after a one day $.32 rise based on some Chinese news ended up. Needless to say, marketing remains one where we need daily market intelligence to capture future profit opportunities. The late spring to early summer in 2015 is no different than we have faced before. The question is can the market bears be slain?

There is no question as a mid May 2015 many analysts think that is a tall order. Globally, everybody like producing $7 corn and $17 soybeans, but at the end of the day production has been raised almost everywhere giving us some of the onerous supplies we have today. This has been exasperated to some extent in late 2014 in early 2015 from an effervescent rising US dollar. However, recently the US dollar has fallen back to almost 4-month lows giving some hope to commodities. With benign weather continuing in the United States, there is been little news for market bulls.

So in many ways, we are grasping for straws with regard to bullish factors that will send the market higher. Clearly though, it will happen at a certain point and these factors may be in incubation now. For instance there has been an El Niño event declared for Australia, which often serves as a significant benchmark in the world wheat market. This dynamic alone can send ripple effects throughout other agricultural commodities and usually has weather affects on North and South America too.

The May 12th USDA report didn't help us out with those bullish factors. In fact, US soybeans with a 500 million bushel 2015/2016 ending stock number were extremely bearish. Ditto for the USDA's estimate of Brazil soybean production for 2015/16 at 97 MMT. However, USDA also predicted a corn yield of 166.8 bushels per acre, which would represent the second-largest ever. It is unlikely that we get those two years in a row.

Commodity Specific Comments

Corn

The corn in the US looks very good at this early stage. Of course, that is a very good thing especially if you need to satisfy the record demand that we see for US corn. The May 12 USDA report pegged corn demand at a whopping record of 13.760 billion bushels outstripping total production this year of 13.630 billion bushels. So ending stocks will decrease, even more so depending on new crop weather.

Despite that, corn prices are cheap and this alone should spur more commercial buying at a time when the noncommercial buyers have gone net short in corn. The October low of $3.46 remains in place, but we are getting very close.

The July 2015-September 2015 corn futures spread are -7 cents, which represents a neutral commercial outlook. The July contract is now trading in the lower 8% of the last five-year price distribution range. Seasonally, corn futures tend to trend down through early July. Of course, the July 4th weekend, like the Memorial Day weekend in the United States can be explosive for corn prices.

Soybeans

The soybean market is the one market that may serve as a drag for both wheat and corn if the crop gets in trouble with summer weather. The 500 million bushel ending stocks figure for 2015/16 in the United States combined with the 97 MMT 2015/16 Brazilian soybean crop production is only a theory now, but it will keep a shadow over new crop prices.

Informa Economics came out with their soybean acreage prediction for 2015 this past week at 87.2 million acres, far above USDA's prediction of 84.6 million acres. If this is realized going into the June 30th USDA report, it will add to supplies, which are already overburdened. Thankfully, demand remains strong, with both exports and crush.

The July 2015 to August 2015 soybean futures spread is inverted, bullish at .0675 cents US. This reflects strong commercial buying for soybeans. Seasonally the soybean futures market tends to trend sideways through mid-June. The July contract is currently trading in the lower 4% of the last five-year price distribution range reflecting just how cheap soybeans are compared the last five years.

Wheat

Has wheat bottomed out? Of course the question can be asked does it ever bottom out because it is grown in so many places in the world. However, in mid-May wheat actually showed signs of life with both China and India supporting lower wheat domestic stocks. This sent wheat prices higher in Chicago and could serve as a symbol for future price direction. The El Niño event in Australia may play out as well.

Wheat is growing actively in Ontario. However, some fields did receive their glyphosate treatment after tough planting conditions last fall made for a less than stellar stand the spring. With early spring planting activity across Ontario, it heightens the chances of good early wheat planting conditions this coming fall.

The Bottom Line (cont.)

The Canadian dollar can be a very fickle market factor. In late 2013 and largely in all of 2014, it can be argued that the declining Canadian dollar was the story for Ontario grain prices. As grain futures declined in Chicago the decline in the Canadian dollar mitigated much of that loss through basis appreciation. However, after reaching a low of .77810 US on March 18th, the Canadian dollar is now trading at .8324 as of May 15th taking away much of the cash price gains over the last several months. Basis values for grains in Ontario have moved lower because of it.

There are several factors that may affect this going into 2015. In fact, the Bank of Canada might cut interest rates again which would be negative for the Canadian dollar. At the same time the US Federal Reserve is expected to increase interest rates, which would be positive for the US dollar and negative for the loonie. Needless to say, the Canadian dollar is approximately 6 cents higher now than it was in March. Finding that foreign exchange sweet spot for Canadian grain producers will likely remain a marketing challenge in 2015.

It is almost like a broken record (or broken hard drive), but crop weather now and in the summer will define crop prices moving forward. The bearish script that has been written so far assumes blue skies and rain ahead. Needless to say, it never really happens that way. There is much production risk ahead and marketing plans should reflect that accordingly.

That may result in making those marketing decisions when the griddle is hot. In other words, sometimes marketing opportunity is real, but fleeting. Daily market intelligence remains key. The challenge, as always for Ontario grain producers is to measure all the different marketing factors that are at play affecting both futures and basis as we move ahead. The June 30th USDA report looms as a major market mover looking ahead. Of course, “benign weather” or “hot and dry” does too. Risk management never gets old. As we head into late spring and summer managing these variables will become even more real.