Market Trends Report for March-April 2016

US and World

It is a quiet time for grain markets. Mid-March is typically a time where farmers are busy getting ready for spring. At the same time traders and market watchers are anticipating the end of the month USDA report that will give us the USDA's first official estimates of prospective plantings in the United States this year. So, it is not entirely unusual to see markets treading water until the big numbers are released at the end of the month. It's no secret that farmers are getting ready to plant another crop in North America. How much they plant will certainly be a focus of interest leading into the March 31st USDA prospective plantings report.

The March 9th USDA report reflected some of this quiet time in the grain markets. The USDA left unchanged its corn ending stocks at 1.837 billion bushels the same as their February report. In fact all the major numbers in US corn remained virtually the same from February. On the global side of the market the USDA actually decreased global ending stocks for 2015/16 to 208.81 MMT from 206.97 last month.

While the corn ending stocks number remains the same, the USDA actually increased soybean ending stocks 10 million bushels to 460 million bushels. The USDA decreased the crush number by 10 million bushels to come up with this figure. On the world stage global soybean ending stocks were reduced for 2015/16 from 80.42 MMT to 78.87 MMT. The USDA also kept Brazilian and Argentinian production the same as February at 100 MMT and 58.5 MMT respectively.

The USDA kept wheat stocks the same as their February report at 966 million bushels. They also decreased world ending wheat stocks for 2015/16 to 237.59 MMT from 238.87 MMT. The reduction in global ending stocks for all three grains was about the only bullish nugget to take from the report.

On March 11th, corn, soybeans and wheat nearby futures prices were higher than the last Market Trends report. The May corn 2016 futures were at $3.65 a bushel. December 2016 corn futures were at $3.82 bushel. The May 2016 soybean futures was at $8.95 a bushel. The November 2016 soybean futures were at $9.06 a bushel. The May 2016 Chicago wheat futures closed at $4.75 a bushel. The Minneapolis May 2016 wheat futures closed at $5.10 a bushel with the September 2016 contract closing at $5.28 a bushel.

The nearby oil futures as of March 11th closed at $38.55/barrel up from the nearby futures of last month of $29.44/barrel. The average price for ethanol on March 11th in the US was $1.63 a US gallon the same as last month at $1.63 a US gallon.

The Canadian dollar noon rate on March 11th was .7576 US up from the .7228 US reported here last month. The Bank of Canada's lending rate remained at 0.50%.

Ontario

In Ontario farmers are getting ready for the spring push and the focus will begin on Ontario acres in 2016. There was an increase of winter wheat acres in Ontario planted last fall of approximately 350,000 and these acres will likely make for decreased soybeans acres in 2016. Much will depend on the spring that we have, but it is likely that Ontario corn acres go up slightly with soybeans taking the brunt of the acres that were planted into wheat. Last year Ontario had 2.055 million acres of corn and 2.9 million acres of soybeans and 630,000 acres of wheat.

Spring and summer weather will be a large determinant of Ontario yields as always. Basis fluctuations will surely follow. At this point there is only guessing how that will play out. The specter of “hot and dry” has been scarce the last few years. However, this is agriculture and it could come back at any time. Needless to say, Ontario producers are hoping for another year of benign weather and good rainfall into late August and September.

Ontario corn has been moving into the United States and to New York State as we continue on the export basis. There will be more corn that needs to be exported into spring. It's entirely likely that we have enough old crop corn to get through to the next season. However, it often doesn't work out that way and producers will have to monitor basis levels daily. There is still much old crop corn in the countryside. The recent rise of the Canadian dollar to over the 75-cent level from .6883 over the last two months has quieted cash sales.

Old crop corn basis levels are .80 to $1.00 over the May 2016 corn futures on March 11th across the province. The new crop corn basis varied from .95 to $1.05 over the December 2016 corn futures. The old crop basis levels for soybeans range from $2.36 cents to $2.55 over the May 2015 futures. New crop soybeans range from $2.22-$2.32 over the November 2016 futures level. The GFO cash wheat prices for delivery to a terminal on March 11th was $8.14 for SWW, $5.89 for HRW, $5.89 for SRW and $6.02 for Red Spring Wheat. On March 11th the US replacement price for corn was $5.15/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The focus of the market now is on the March 31st USDA Prospective Plantings report. This is one of the big three reports that happen every year, the next one being the June 30th report when we will know actual surveyed acreage. It is hard to know at this point what American farmers will do for acreage in 2016. The classic agricultural economist would say prices need to go down to a point where production is curtailed. It is difficult to say, but we are unlikely to see lower planted acreage figures in 2016 based on current prices. Last year, we had 85.1 million acres of soybeans and 88.9 million acres of corn. Informa economics has a preliminary projection of 87.5 million acres of soybeans and 88.5 million acres of corn for 2016. A cut in acreage may not be in the cards.

The March 31st USDA report may serve as a flashpoint for grain futures markets, but the Canadian dollar over the last eight weeks has eroded cash basis values in Ontario. After reaching a low .6883 cents US on January 20ths, as of March 11th it's reached over $.75 US in a meteoric rise. The trade-off between lower dollar and higher futures is always difficult for Ontario producers and the last eight weeks have proven why with futures sideways and the dollar gaining. This will continue to challenge Ontario farmers throughout 2016.

The question is have commodities reached the bottom or are they on the slow way back? Oil has gained almost a third of its value back from its lows. This has been significant to the Canadian dollar. Also too, even with the bearish fundamentals of the March 9th USDA report, futures have had a small rally going into March 11th making up to some extent basis losses. If we are on the way back, it is likely that oil will lead the way. On the other hand, if it's just a flash in the pan, agricultural commodity should consolidate again. It might take that production calamity or black swan event to get a real rally going.

The US dollar index as of March 11 is 96.172, which is down from the hundred-point level, which it reached last November. However, this is still much higher than the 80-point level we were at in 2013 and 2014. Of course, the US dollar has been even higher like in the 115 to 120 range in 2002. As the US dollar is the world's default currency, as its value goes up demand for products priced in US dollar goes down. Currently, at the 96-index level it is a detriment to agricultural commodity demand. The US dollar will continue to act as a brake on any grain futures rally if it stays that these lofty levels.

Commodity Specific Comments

Corn

Corn has been difficult to get moving for months now. A May futures at $3.65 is still nothing to write home about and the USDA did virtually nothing in their March report. The US dollar has also hurt corn exports in the March report. The USDA actually reduced corn used for ethanol slightly by 9 million bushels. Corn ethanol demand is currently 5.2 billion bushels.

Will the USDA say on March 31st there will be 90 million acres plus of corn in 2016? If it happens it will surely be another bearish factor for the new crop market. The old crop remains under the same old fundamentals, but eventually will have to move into the market. Producers selling into them may temper short-term rallies.

The May June 2016 corn futures spread is neutral currently at -.04 cents as of March 11th. Seasonally, corn futures tend to trend sideways through the middle of May. The May corn futures contract is trading in the lower 11% of the five-year distribution range.

Soybeans

Soybeans continue to be under all the bearish fundamentals that they have always been under over the last several months. However, they have rallied in the last two weeks before March 11th with the November contract actually passing over $9.00. This is happening in a market environment where many market observers are saying a Brazilian crop of over the USDA estimate of 100 MMT. The Argentinian crop is also higher at 58.5 and these soybeans continue to weigh on the market.

As of March 11th soybeans actually had their highest close in 2016. This is partly because of soybean oil rising along with the May Palm oil contract. US soybeans are actually cheaper at the gulf now than Brazilian soybeans, which is giving a little support to prices.

The May 2016 July 2016 soybean futures spread reflects a neutral commercial position at -.05 cents a bushel. The May soybean contract is priced in the lower 10% of the last five-year price distribution range. Seasonally, the soybean futures market tends to trend up through early May.

Wheat

The wheat market continues with bearish fundamentals. However, in spite of that we've seen a $.30 rise in the July futures for SRW wheat in Chicago. For producers, the hope is that the low is in setting up selling opportunities for the robust looking Ontario wheat crop.

The Ontario wheat crop does look good coming out of winter in southwestern Ontario. In fact, some of the wheat has never looked better partly based on a very benign winter setting. However, that is not the case everywhere in Ontario especially in Eastern Ontario where ice has been a factor on many fields and it is yet to be determined how many acres are affected.

The Bottom Line (cont.)

The March 31st USDA prospective plantings report will dominate market action towards the end of March. Getting the USDA's best guess on corn and soybean acres for 2016 is almost like a starting gun on the real new crop year. Clues to how many acres might be planted may comes from the 2016 US crop year insurance prices. These are $3.86 for corn and $8.85 for soybeans. These prices were determined in February and are about middle-of-the-road with regard to expectations to boost acres in both crops in 2016. They are lower than last year, but probably high enough to slightly increase planted acres for 2016. It is all a theory now and we will know more on March 31st.

For Ontario farmers balancing the futures risk versus the Canadian dollar volatility continues to be very important. Nobody could have predicted on January 20th when the loonie hit .6883 cents it would turn around in a meteoric rise into March 11 at over $.75 US. On the contrary, there were many analysts that said it was going to go even lower. The simple fact is, nobody can predict these things with certainty. The Bank of Canada is unlikely to raise interest rates in 2016. However, I do not think that is the same for the US Federal Reserve in the United States. Any interest rate increase again in the United States will be bullish for the US dollar and may put additional pressure on our grain futures prices as well as the dampening of Canadian dollar value.

We are entering the season of weather related news, which may surely affect market prices. Sure, we still have bearish fundamentals for grain, but over the last few weeks, futures prices are higher and maybe a bullish signal for something else. Those futures gains have been mitigated by a Canadian dollar on a tear. Needless to say, managing that balance between futures prices and Canadian dollar volatility continues. The way down to 68 cents US was a bit of a mirage in that time frame. The road back currently now at over 75 US is too. Where it will even out and settle for an extended period is another question.

Grain marketing is always a fluid experience. It's a constantly changing market environment and in Ontario, even more so with our foreign exchange volatility. The right answer to our marketing is selling those crops over time profitably. In our current market environment that will continue to be a challenge. Timing of grain sales can be your friend. One thing we know is over time, everything changes including the weather. In 2016, we are entering that time in the market where weather will exact its influence significantly. Standing grain-selling orders are always good tools to capture those fleeting marketing opportunities that arise overnight in a blink of a futures screen. March 31st USDA report will help set the stage. As we get ready to plant, daily market intelligence remains key.

Market Trends Report for February-March 2016

US and World

February is a time in the grain market that can be marked by indecision, choppiness and quiet markets. The January USDA report usually sets the tone for the market putting a period on last year's crop and setting up the fundamentals for the new crop year. You might describe it as swimming in mud until the prospective plantings report in late March. Grain markets are drifting sideways and lower. The February USDA report can serve as a fine-tuning of the January report and the new crop year which is about to dawn. There is corn already planted in Texas.

In the February USDA report the grain bears continued to dominate the day. The USDA actually increased Brazil and Argentinian projected corn production 84 MMT and 27 MMT respectively. At the same time the USDA set the Brazilian crop at 100 MMT, but raised the Argentinian crop 1.5 MMT to 58.5 MMT. The USDA also increased corn, soybeans, and wheat ending stocks further pushing the bearish envelope.

USDA pegged corn-ending stocks at 1.837 billion bushels, up to 35 million bushels from last month with the domestic stocks to use ratio for corn boosted to 13.6%. They also boosted US soybean stocks to 450 million bushels. US Wheat stocks were raised to 966 MMT, up 25 MMT from last month. Globally wheat-ending stocks were increased to 33.6% from last month's estimate of 32.4%.

On February 12th, corn, soybeans and wheat nearby futures prices were lower than the last Market Trends report. The March corn 2016 futures was at $3.58 a bushel. December 2016 corn futures were at $3.81 bushel. The March 2016 soybean futures was at $8.72 a bushel. The November 2016 soybean futures were at $8.86 a bushel. The March 2016 Chicago wheat futures closed at $4.57 a bushel. The Minneapolis March 2016 wheat futures closed at $4.84 a bushel with the September 2016 contract closing at $5.05 a bushel.

The nearby oil futures as of February 12th closed at $29.44/barrel about the same from the nearby futures of last month of $29.42/barrel. The average price for ethanol on February 12th in the US was $1.63 a US gallon vs. last month at $1.58 a US gallon.

The Canadian dollar noon rate on February 12th was .7228 US up from the .6883 US reported here last month. The Bank of Canada's lending rate remained at 0.50%.

Ontario

In Ontario, mild weather was the order of the day into late January and early February. However, that all changed in mid-February as frigid cold subzero temperatures returned. There was some reflection about Ontario wheat during this time even some musing about it starting to grow again at the wrong time. However, some snow and freezing temperatures have changed all that, but so far the wheat looks to be largely still there as of mid-February. Producers will be hoping for good things when wheat finally emerges from its winter slumber.

The Canadian dollar actually reached in the 68-cent range on January 20th before rebounding into the $.72 range as a mid-February. This had a significant impact on basis levels especially on soybeans and wheat at that time before eroding as the dollar gained back. This is seemingly the normal this winter season, as Canadian dollar risk will have a huge impact on basis levels.

Old crop corn basis levels are 1.00 to $1.10 over the March 2016 corn futures on February 12th across the province. The new crop corn basis varied from .95 to $1.10 over the December 2016 corn futures. The old crop basis levels for soybeans range from $2.80 cents to $2.92 over the March 2015 futures. New crop soybeans range from $2.65-$2.75 over the November 2016 futures level.The GFO cash wheat prices for delivery to a terminal on February 12th was $8.27 for SWW, $5.78 for HRW, $5.78 for SRW and $5.74 for Red Spring Wheat. On February 12th the US replacement price for corn was $5.44/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

It is very difficult to get excited about grain futures prices. There is hardly a path forward to see a place for the grain bulls to break free. The February USDA report added to that general tone with increases in stocks both in the US and globally. However, it is important to remember that nothing has really changed. We have been in this down to sideways movement for several months now. It's going to take some very fresh news to change that direction.

When that will happen is anybody's guess. The days of February are passing quickly and the psychology is definitely changed to a new crop adaptation. It is likely that we drift in the same general direction until we're into March with the March 30th USDA report giving official USDA numbers for 2016 acres. However, it will be important to watch futures spreads closely. This will give clues on future market direction and disappearance.

Are there flies in the ointment as we head toward March? There surely are a few such as wheat conditions around the world. There are problems in some black sea wheat fields with too much ice, but at this point that is just a flyer. The price of oil continues to flutter at very low levels pushing down the price of gasoline. Ethanol stocks are at very high levels.

It is an old axiom, but it will take fresh news to move grain futures prices. Call this a black swan event or an unexpected Tuesday, something that the market doesn't see to boost prices higher. We should also realize that we have been in this downward to sideways pattern for quite some time now and it may simply just continue.

Commodity Specific Comments

Corn

The December corn futures in February need to be focused on partly because they are responsible for setting US crop insurance revenue levels. As of February 15th, December corn is at $3.81 dropping from $3.95 on Feb 5th. This drop if it is maintained will likely mean less corn acres and more soybean acres in 2016 based on crop insurance revenue guarantees. However, if this changes significantly into the end of February it will have the opposite effect. It is one of the first clues into 2016 acreage shifts between corn and soybeans.

Corn has several issues. With ending stocks at 1.837 billion bushels and ending stocks at 13.6%, this is the largest since the 2005/2006 marketing year. That was just before the ethanol boom, showing that the supply part of the market has adjusted accordingly.

The March 2016/May 2016 corn futures spread is currently at -.0475 cents/bushel, which is neutral to corn. Seasonally, corn tends to trend up through early March. The March corn futures contract is currently trading in the lower 6% of the five-year price distribution range.

Soybeans

Big crops weighing on our soybean market have been there since the fall. However, at the present time there is much harvesting going on in South America and the yields are very good. This was substantiated in the USDA report with Brazil being sustained at 100 MMT and Argentina being increased to 58.5 MMT of soybeans. It is a theory no more and market actions will be shifting because of that.

Focus will surely be on soybean acreage in the United States going forward. Much will depend on the crop insurance revenue guarantees. Inform economics published their projection of 87.5 Million acres of soybean recently, which is an increase from 85.1 million acres last year. It only adds to the bearish sentiment in soybeans.

The March 2016 May 2016 spread is -.0375 as of February 15th, which is considered bullish. Seasonally, the soybeans market tends to trade up through early May. The March contract is being priced in the lower 3% of the last 5-year distribution range.

Wheat

Wheat seemingly is always in difficult bearish territory and the February USDA report didn't help matters. USDA actually raised US wheat ending stock to 966 million bushels up 25 million bushels from last month. The US stocks to use ratio continues to rise, currently sitting at 49.3%. The USDA effectively piled on by also raising global stocks to 238.87 MMT, far more than expected.

In Ontario, cold weather has returned as of mid February after a very open January when wheat was exposed to higher than normal temperatures. The cold temperatures have created conditions for snow cover, which is wanted by many Ontario wheat producers.

The Bottom Line (cont.)

Commodities continue to be in a difficult position around the world. Oil continues to be very shaky trading under $30 with reserves growing. Gasoline prices are way down and ethanol profits have been down partly because of that. Ethanol is usually priced less than wholesale gasoline, but lately in the United States it is being higher. The US renewable fuel standards mandate ethanol but under this price environment growth is stymied. Most US ethanol plants continue to operate, but at reduced capacity.

The Canadian dollar remains the trump card for Ontario grain prices, but it has rebounded to some extent over the last three weeks currently to the 72 levels US up from 68 on January 20th. This has been the saving grace for grain prices in Ontario. Managing this volatility going forward will remain a management challenge.

With the collapse in commodities the focus is clearly on the US farmer. With the relative strength of the US dollar compared to other currencies most world production areas are getting the signal to plant in a big way whether that is in South America, Europe, the Black Sea region or in Canada. Corn futures prices of $3.58 and soybeans at $8.72 with lower basis levels are what American farmers are looking at. Classic agricultural economics would say the American farmer would eventually produce less if the price got cheaper. That is the focus of price action at the futures level right now. However, in 2016 it still looks at these lower prices will not cause a reduction in acres.

Of course there always is weather. In South America there been a few problems with generally benign weather leading to the great crop. South Africa has had disastrous drought partly caused because of El Niño. North America has had a mild winter. This El Niño may turn into a La Nina with adverse crop growing conditions for North America and Western Europe, but is not expected to come along until later in 2016 after the crop is made. Still, we know as farmers everything is cyclical including the weather.

The key challenge for Ontario is to focus in on managing our risk going forward. The Canadian dollar is providing opportunity and capturing some of that can never be a wrong thing. As we move into March the focus will increasingly be on the March 30 USDA report. There surely will be many crop-marketing opportunities ahead.

Market Trends Report for January-February 2016

US AND WORLD

The January USDA report is often one of the most influential of the year. Often in the past the January report has seen a limit move in grains as it represents the final numbers on the crop grown in 2015 from the USDA. With the bearish tone of the market over the last few months many market observers were expecting more of the same from the USDA. No question, there was a huge crop in the United States in 2015. Would the January USDA report make it even bigger?

In the USDA report it was the opposite, in fact, the US crop is not as big as previous USDA reports. This was somewhat of a mild surprise, but in many ways it puts in perspective how big the US crop really is. Sometimes the bearish hype can get to be too much. The USDA reduced the US corn crop by 53 million bushels down to 13.6 billion bushels. However, USDA increased the corn ending stocks slightly to 1.802 from 1.785 billion bushels from last month. The national yield was reduced to 168.4 bu/acre, from 169.3 in their December estimate. The ending stocks to use ratio came in at 13.3%, which is actually slightly higher than last month.

The soybean estimates from the USDA were slightly more bullish than their corn numbers. The USDA pegged the US soybean crop at 3.93 billion bushels, which was 1% lower than their November estimate. US national yield was reduced to 48 bu/acre. The USDA also cut 2015/2016 ending stocks to 440 million bushels from 465 million bushels in their December estimate. The USDA left the Brazilian Argentinian soybean production unchanged last month at 100 MMT 57 MMT respectfully. This was a bit of a surprise as many Brazilian forecasters have been pegging the Brazil crop down to approximately 97 MMT. The ending stocks to use ratio came in 11.9%, this is down from 12.4% last month. USDA increased its forecast for wheat ending stocks to 232 MMT, which was above pre-report estimates. There is “so much wheat”, that is the mantra of the day.

On January 17th, corn, and wheat nearby futures prices were lower than the last Market Trends report. Soybeans were higher. The March corn 2016 futures was at $3.63 a bushel. December 2016 corn futures were at $3.85 bushel. The March 2016 soybean futures was at $8.79 a bushel. The November 2016 soybean futures were at $8.85 a bushel. The March 2016 Chicago wheat futures closed at $4.73 a bushel. The Minneapolis March 2016 wheat futures closed at $4.97 a bushel with the September 2016 contract closing at $5.20 a bushel.

The nearby oil futures as of January 17th closed at $29.42/barrel down from the nearby futures of last month of $35.62/barrel. The average price for ethanol on January 17th in the US was $1.58 a US gallon vs. last month at $1.81 a US gallon.

The Canadian dollar noon rate on January 15th was .6883 US down from the .7301 US reported here last month. The Bank of Canada's lending rate remained at 0.50%.

ONTARIO

In Ontario January weather has set in with only a few cornfields left across the province. The story of course for our Canadian basis levels has been the value of the Canadian dollar slipping under the $.70 mark in the week of December 14th. Even with this low Canadian dollar that cannot take away the fact that we had record corn yields in the province in 2015 upwards of 170 bu/acre. We need to export possibly 50 to 60 million bushels of corn to get back to an import basis. That is unlikely until the summer time, if it happens at all. With current old crop corn basis at $1.00 above futures it is creating the environment of price optics not seen in quite some time.

Of course basis levels in wheat and soybeans tend to be more accentuated simply because it is a simple conversion of foreign exchange. A positive $3 basis for Ontario soybeans is unusual compared to the last two years, but it is not unprecedented. Where the loonie goes in the next four weeks will determine how this basis expands and contracts.

Old crop corn basis levels are .95 to $1.05 over the March 2016 corn futures on January 17th across the province. The new crop corn basis varied from .95 to $1.05 over the December 2016 corn futures. The old crop basis levels for soybeans range from $3.05 cents to $2.30 over the March 2015 futures. New crop soybeans range from $2.95-$3.05 over the November 2016 futures level. The GFO cash wheat prices for delivery to a terminal on January 17th was $8.92 for SWW, $6.30 for HRW, $6.30 for SRW and $6.21 for Red Spring Wheat. On January 17th the US replacement price for corn was $5.43/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

THE BOTTOM LINE

The January USDA report is what it is, but the elephant in the room is no longer China or the crop that was grown in 2015. It is the value of the Canadian dollar. Futures values have a tremendous effect on the price of grain and it is the same in Ontario. However, even though the value of the Canadian dollar has been the story in Ontario grains for well over a year now, its precipitous drop since Christmas has accentuated cash price opportunities in Ontario.

Simply put, we have all been waiting or even anticipating some type of grain futures rally since last summer. However, so far that is not come especially in this bearish grain futures market. Needless to say, when the grain rally in the futures market comes, it will be accentuated by the low values of the Canadian dollar to cash prices likely higher than we've seen the last few years. The wildcard is that futures rally. It will come, but when? For Ontario farmers, balancing the effect of the low loonie versus any type of increased futures value will continue to be our challenge.

Dry weather in Mato Grosso had earlier been thought as a big problem for Brazilian soybean production. However, even though there have been extremely hot temperatures, rains have reached into the soybean fields. It is unlikely at this point that the South American crop reality will be anything but bearish for grain futures prices. The USDA maintained Brazilian and Argentinian production at 100 and 57 MMT respectably in their last report. That is unlikely to change and in fact may be raised later in the year.

It's pretty clear fresh news is still needed to spark any type of positive price movement in the grain futures market. A 2015 corn yield 168.4 bushels and soybean yield at 48 bushel/acre is still substantial and that along with the South American crop size weigh on the market. In January, any crop related problems in the US in 2016 are simply a theory. As it is, fresh news is needed and it's not here yet.

COMMODITY SPECIFIC COMMENTS

CORN

The January USDA report maintained US corn demand at very strong levels. Current demand stands at 13.570 billion bushels, which is down from a year ago of 13.748. Of course, with the current supply levels 15.732 billion bushels, that isn't enough. Until this changes, it is difficult for corn to move substantially.

US corn ending stocks grew in the January report. 1.802 billion bushels is not unprecedented, but it is clearly getting much closer to the 2 billion bushel level. Exports have been a problem accentuated by the high level of the US dollar and the performance of other commodities.

The March 2016 May 2016 corn futures spread is neutral at minus .04 cents. This is reflective of a market going sideways. Seasonally, the corn market generally tends to trend up through early March. The March contract is currently trading in the lower 9% of the last five-year price distribution range.

SOYBEANS

The USDA report was more bullish for soybeans versus any other grain. With the reduction in national yield to 48 bushels per acre and a reduction in ending stocks, it set the tone for the market day where soybeans gained. Of course, USDA can sometimes change this later and it may be changed in September 2016.

Chinese soybean imports are being maintained and even increased in light of their deteriorating domestic economy. Lower economic growth numbers were expected in China, but food commodity demand has been maintained and even increased. Much of this demand will be satisfied by US soybeans until South American supplies come on stream.

The March/May 2016 future spread is .0025 as of January 17th and is bullish with commercials wanting soybeans. This is taking place in a sideways market. Seasonally the soybean futures market tends to trend up through early May. Currently, the March contract is priced in the lower 5% of the last five-year price distribution range.

WHEAT

The wheat market continues to suffer from too much wheat on world markets. The noncommercials interests have all been short the wheat market and this should not be surprising with world stocks rising.

In Ontario the wheat has not had a lot of snow cover especially in the deep South West and producers will be hoping it gets through some of the January rains. Of course cash prices for wheat are healthy compared to our history based on the low value of the Canadian dollar.

THE BOTTOM LINE (CONT.)

In the January USDA report there were more than a few bullish nuggets to give producers hope. However, there are always confusing facts that muddy the water. For instance, the USDA reduced corn planted area in 2015 400,000 acres, but kept the harvested acreage the same versus their December report. That defies common sense, but the USDA must have an explanation somewhere. It's just an example how numbers can change without little explanation.

In the week of January 19th we should learn from the Bank of Canada governor Stephen Poloz whether interest rates might be cut another 25 basis points. The reason for this is the worsening Canadian economy and the attempt by the bank to stimulate aggregate demand. Any cut in interest rates in Canada will be another negative to the Canadian dollar further boosting Canadian cash values. This needs to be watched as we move ahead.

Of course the antithesis of the Canadian dollar has been the value of the US dollar, which has been higher fueled by an American economy that is getting better. This continues to put a drag on all commodities, especially oil, which tends to get a lot of publicity. In this environment it is very difficult for grain futures prices to move to more positive levels with the US dollar reaching.

In many ways, it is the tale of two markets. Canadian cash prices have been rising as the loonie and grain futures levels have been dropping. If futures turn around and go higher, cash prices to Ontario farms will be much higher. It is not like we have not seen this type of loonie volatility before. However, when the Canadian dollar gets below $.70 cash price movement can swing wildly on daily intervals.

Looking ahead, the market will likely change focus barring some type of South American production calamity. New crop fundamentals will likely be debated into the March 30th USDA planting intentions report. In Ontario, a daily watch of the Canadian dollar will remain a must. The challenge for Ontario farmers is to manage the foreign exchange layer on top of those grain futures values. Daily market intelligence remains key to seizing those marketing opportunities.