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.

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.

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.