Market Trends Report for November-December 2015

US and World

Harvest continues in the United States. As of November 8th 93% of corn has been harvested and 95% of the soybeans. It has been a very bountiful harvest across the American Midwest. The crop size in the United States continues to grow. The Ground Zero area for wet spring weather has caused smaller harvests in some areas like Central Indiana, but crops have thrived in other growing areas giving the United States tremendous yield. The August USDA report had predicted this going forward and on November 10th the USDA chimed in once again with their latest crop estimates.

On November 10th, the USDA raised their corn estimate to 13.65 billion bushels, this was 99 million bushels more than their October report. The national corn yield was increased 1.3 bushels per acre to 169.3 bushels per acre. This will result in the second-highest average yield and the third largest production in US history. The harvested acreage was left unchanged at 80.7 million acres. Corn ending stocks were increased by 199 million bushels to 1.76 billion bushels. The ending stocks to use ratio for corn was increased 12.9%.

On soybeans the USDA increased total production to 3.98 billion bushels. This represented an increase of 1.1 bushels per acre versus the October report setting yielded 48.1 bushels per acre. The harvested soybean acreage remains at 82.4 million acres. The US domestic stocks to use ratio increased to 12.4%. For wheat, there were very few changes by USDA, cutting exports slightly. The ending stocks to use ratio in the United States climbed to 45.1%.

On November 13th, corn, soybeans and wheat nearby futures prices were lower than the last Market Trends report. The December corn 2015 futures was at $3.58 a bushel. The November 2015 soybean futures was at $8.55 a bushel. The December 2015 Chicago wheat futures closed at $4.95 a bushel. The Minneapolis December 2015 wheat futures closed at $5.04 a bushel with the September 2016 contract closing at $5.41 a bushel.

The nearby oil futures as of Nov 13th closed at $40.74/barrel up from the nearby futures of last month of $49.63 all/barrel. The average price for ethanol on Nov 13th in the US was $1.84 a US gallon vs. last month at $1.91 a US gallon.

The Canadian dollar noon rate on November 13th was .7501 US down from the .7724 US reported here last month. The Bank of Canada's lending rate remained at 0.50%

Ontario

In Ontario harvest is reaching completion in many areas of the province. Soybean harvest is essentially finished with only a few rogue fields present. Corn harvest is near completion in southwestern Ontario, but there remains quite a bit of corn left in the field in Eastern and Central Ontario. Yields have been tremendous in southwestern Ontario and across the province with select areas having their challenges. Wet weather in some areas this past spring have come back to limit yield on some fields.

Basis levels have been surprising this fall. It has mainly been in corn. The corn basis has actually improved greatly through what is a record harvest for many people. However, it is uneven across the province. In deep southwestern Ontario the corn bases has moved from approximately $.50-$.90 above the nearby futures in a period of about three weeks into November. This is happening with corn all over the ground west of Toronto. On the other hand the Eastern Ontario basis has decreased reflecting big yields and a lack of storage and movement out. Of course, the Canadian dollar currently fluttering in the $.74-$.75 range has aided the situation. The US bases has also been very strong, which has raised Canadian basis levels. Farmers have also slammed the bin door shut. Farmer selling has been slow.

This has taken place at a time when the futures prices are near contract lows. End-users still need their corn and soybeans and basis values sometimes are an inverse of low futures levels. The Canadian dollar of course changes things greatly, totally obscuring the low-price reality that many producers in the United States face. There has been some export movement out of Ontario. Of course, the situation will remain fluid, especially with crop still in the field. Our low Canadian dollar may encourage further exports.

Old crop corn basis levels are .80 to .90 over the December 2015 corn futures on November 13th across the province. The new crop corn basis varied from .65 to $.85 over the December 2016 corn futures. The old crop basis levels for soybeans range from $2.16 cents to $2.26 over the January 2015 futures. New crop soybeans range from $1.80-$2.03 over the November 2016 futures level. The GFO cash wheat prices for delivery to a terminal on Nov 13th was $8.46 for SWW, $6.20 for HRW, $6.20 for SRW and $5.78 for Red Spring Wheat. On November 13th the US replacement price for corn was $5.23/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Grain futures prices are moribund. There is not much other way of describing it. Since the August USDA report flummoxed the market with bigger crop numbers, it has never stopped. The November USDA report continues to document a big crop getting bigger. There are record crops and not by a little bit in places like Minnesota Nebraska and Iowa. The 169.3 bushels per acre of corn and 48.3 bushels per acre of soybeans from USDA don't lie. It should be expected that the final January USDA report might be even higher.

The saving grace for many in the United States has been basis. In fact, with futures at such low levels, often basis will shift the other way trying to get farmers to open the bin door after they have slammed it shut. This is taking place across the United States and is especially relevant for corn bids close to the Ontario border. In some places like Central Indiana, which took the brunt of the heavy rains this past spring; it is showing up with very high basis levels during this harvest season. Simply put, there is a heavy density of ethanol plants with a very poor crop. Corn is pouring in from across the Eastern corn belt with basis levels reflecting that. However, in the Western corn belt in many locales it can be the opposite.

The futures corn prices are low because there is too much corn and demand is fraying a bit at the seams. We are still at near record demand levels, but we have lost 100 million bushels of demand from last month. Ethanol demand is down 75 million bushels from last month with export demand down another 50 million bushels. The USDA actually increased by 25 million bushels the domestic feed and residual use category. Needless to say, in this market environment, corn did not need a cut in demand.

The elephant in the room is South America. Planting rates have increased in the center west and southeastern Brazil going into the first week in November. Mato Grosso has seen very good progress in soybean planting. Argentina as of November 13th is approximately 20% planted. All of this is happening in an environment where local currency is worth so much more because of the strong US dollar. Brazil is set to produce 101 MMT of soybeans, which will be another record. If the trend continues like it has for the last several years it would almost seem like there are no bounds. This type of production looms in the background of all grain futures trading.

Commodity Specific Comments

Corn

It has not been the best month for corn prices and that is largely due to the abundance in the fields. However, keep in mind market structure is also very important and with the ending stocks to use being increased to 12.9% from 11.3%, it shows just how much corn has fallen out of favor. The ending stocks to use figure has again gained credibility for market direction, as noncommercial demand seems to react acutely on USDA market report days. November 10th was an example of that. With computers now making the trades in Chicago, emotion is being left at home.

Corn is also suffering from increased competition from lots of feed wheat on the world market. There is also quite a bit of competition from Brazil and Ukraine further plugging the American grain pipeline. Corn continues in its lower to sideways pattern.

The December 2015 March 2016 corn spread is neutral at -.0725 cents as of November 13th. That is a reflection for just how much corn is on the ground in the United States. The December contract is trading in the lower 5% of the five-year price distribution range. Seasonally, futures prices for corn tend to trend down through November.

Soybeans

2015 US crops have been impressive, but the soybean yield number of 48.3 bushels per acre might be the most impressive of all. We are very used to the productivity gains in corn but this year's US soybeans have done quite well. That is reflected in the increase carryout in the November 10th report of 465 million bushels of soybeans. Soybeans are often portrayed as the great liars, but always come back to tell the truth.

In the November 10 USDA report, Chinese demand continues to grow for soybeans, now up to 80.1 million metric tons, which is always a good thing for soybean farmers. Brazil, Argentina and the United States will continually benefit from that seemingly insatiable soybean demand.

The January 2016 March 2016 soybeans future spread is currently at -.01 cents, which is considered bullish even at a time when both the short-term and long-term trends in the market are down. The January soybean contract remains in the lower percentages of the five-year price distribution range. Seasonally, it seems like we always see soybeans rise into May.

Wheat

The wheat market is reflective of the greater commodity market with burdensome supplies. At the present time we are a 20-year global world stock highs in wheat. That is keeping prices low and with wheat produced almost everywhere, basis competition is very high. Domestically, the USDA pegged their domestic stocks to use ratio at 45.1% up from 41.6% reported here last month.

In Ontario wheat was planted with enthusiasm this fall as many producers especially in southwestern Ontario did not get any wheat planted in 2014. Expect about 1 million acres of wheat to head into the Ontario winter this fall. Finding a place for that wheat next summer will surely be a challenge.

The Bottom Line (Continued)

There is no question that once again basis is helping Ontario farmers. The corn basis has moved up substantially because of US basis, but it's also there because of the foreign exchange. Even with the low soybean futures that we have basis levels above $2 Canadian are helping out. If we had a par dollar like we had two years ago cash prices in Ontario would be sub $3 dollars for corn and in the $7 range for soybeans. The Canadian dollar is saving us or fooling us depending on how you look it. Needless to say, Ontario cash prices are much higher because of the Canadian dollar.

The double-edged sword is as the Canadian dollar is lower to some extent it is a reflection of the inverse of the US dollar which has been very strong. This has put a tremendous headwind on grain futures prices. It has been especially difficult in wheat and corn. If the US Federal Reserve decides to raise interest rates in the next few weeks, it is likely to keep demand for the US dollar growing. This will be a negative for grain futures prices.

In Ontario it is likely that we will have enough corn all year for our needs negating any import basis in the future. However, 2015/16 is different from other years. A strong basis at harvest is partly a reflection of the Canadian dollar, but also a reflection of the strong US basis in the Eastern corn belt. Ontario corn is moving into New York and depending on the value of the Canadian dollar and US basis moving forward may flow into the United States in greater amounts. Daily market intelligence will be key for Ontario farmers especially this late fall and winter to keep track of those trends. It is especially not straightforward this fall what will happen. With much corn still in the field in Central and Eastern Ontario and with a good crop in Western Québec basis opportunities may fade quickly.

We still have our potpourri of geopolitical factors that will and can affect our grain markets. Problems in Syria and terror strikes in Paris and other cities have all the big powers jockeying for position. This instability may impact trade flow at some point. However, for the moment it will not take away the big supplies that we had in the United States this year and the bigger supplies we are expecting from South America being planted now. The challenge for Ontario producers is to measure these different market factors and take advantage of the strong basis levels currently being seen for Ontario grain. Nobody knows with regard to prices what will happen next, but risk management never grows old. Managing that risk remains a constant task.

Market Trends Report for October-November 2015

US and World

In the United States corn harvest is 27% complete and soybean harvest 42% complete as of October 5th. Good weather in the United States has led to some good harvest progress. It has been a year where market watchers have been keen to see USDA numbers as early wet weather issues in the US corn belt caused much uncertainty in crop size. Despite that, the USDA has been the harbinger of big crops this year consistently estimating good yields for both corn and soybeans. The October 9th USDA report was being seen as a litmus test to whether late-summer projections of big crops were real.

On October 9th, the USDA confirmed what they have been projecting all summer. The USDA pegged the US national average corn yield at 168 bushels per acre, up half a bushel an acre from last month. The harvested corn acreage was cut back by about 500,000 acres to 80.7 M ac. This harvested acreage figure was at the lower end of the trade expectations. The USDA boosted US soybean yield up to 47.2 bushels per acre up .1 bushels per acre from last month. They also lowered US soybean harvested acreage by 1.1 million acres to 82.4 M ac.

The USDA on October 9th pegged corn-ending stocks for 2015/16 at 1.561 billion bushels, down 31 million bushels from last month. The ending stocks to use ratio dropped slightly to 11.3%. Globally, corn-ending stocks were estimated at 187.83 MMT, which was down 1.9 MMT from last month. The USDA also cut its 2015/16 soybean ending stocks by 25 million bushels to 425 million bushels. The soybean ending stocks to use ratio dropped 11.5%. USDA is projecting their wheat production to be 2.052 billion bushels down 84 million bushels from last month.

On October 9th, corn and soybeans were lower but wheat nearby futures prices were higher than the last Market Trends report. The December corn 2015 futures was at $3.82 a bushel. The November 2015 soybean futures was at $8.85 a bushel. The December 2015 Chicago wheat futures closed at $5.09 a bushel. The Minneapolis December 2015 wheat futures closed at $5.29 a bushel with the September 2016 contract closing at $5.69 a bushel.

The nearby oil futures as of October 9th closed at $49.63/barrel up from the nearby futures of last month of $44.63 all/barrel. The average price for ethanol on October 9th in the US was $1.91 a US gallon vs. last month at $1.84 a US gallon.

The Canadian dollar noon rate on October 9th was .7724 US up from the .7532 US reported here last month. The Bank of Canada's lending rate remained at 0.50%.

Ontario

In Ontario soybean harvest is progressing well across the province. Good weather has provided a wide harvest window for soybeans, which started in late September. Some areas of the province have completed soybean harvest and started into corn. Yields have been strong in Eastern Ontario and more variable in other parts of the province where heavy spring rains have damaged the crop. The wide-open early soybean harvest has meant many wheat drills were following combines this fall. In some parts of the province like Southwestern Ontario producers who got 0 acres of wheat established in 2014 have all their wheat planted this fall.

Corn harvest has started across the province, but is in its initial stages. The warm open September and early October have provided good drying weather for this crop. Early yield indications are very high with high-test weight corn. It is likely that Ontario corn yield will challenge some of the high values of the last few years. A record yielding corn for Ontario is very possible in 2015.

The melding of basis levels has taken place over the last few weeks. Old crop is now the crop being taken to the elevator, while new crop is the crop you will plant next spring. Basis levels for corn have decreased versus last month. The soybean basis has seen slight erosion from last month reflecting to some extent harvest pressure as well as the value of the Canadian dollar. The Canadian dollar has improved a couple of cents against the US dollar and this will be reflected in basis values.

Old crop corn basis levels are .60 to $1.15 over the December 2015 corn futures on October 9th across the province. The new crop corn basis varied from .55 to $.85 over the December 2016 corn futures. The old crop basis levels for soybeans range from $1.95 cents to $2.15 over the November 2015 futures. New crop soybeans range from $1.52-$2.02 over the November 2016 futures level.The GFO cash wheat prices for delivery to a terminal on October 9th was $8.67 for SWW, $6.47 for HRW, $6.21 for SRW and $5.95 for Red Spring Wheat. On October 9th the US replacement price for corn was $5.23/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

We've got huge crops coming out of the US. In many ways it is a testament to our production technology. In the early spring there was much conjecture from too much rain in the American Midwest. In many ways, this has always put some type of doubt in the market regarding crop size. For instance, as farmers, we know that damaging heavy rains can often reduce our crop health and ultimately our crop yield. However, if the October 9th USDA report did anything, it substantiated previous USDA claims that both the corn and soybean crop in the United States are some of the biggest of all time. Any doubt and conjecture that the damaging weather hit the crop hard in an overall sense is in the rear view mirror.

It is also so different from 2014. Last year we had big crops, but we were coming off a year where the crop was not as big. So in October and November of last year we had inverted futures markets and basis levels were very strong. This year as we head into the later fall we have carry in the futures market with weaker US basis levels. This is also partially reflected in the USDA projected ending stocks of 1.561 billion bushels of corn and 425 million acres of soybeans. The market simply does not want the grain like it did last year. Futures prices have tried to breach $4 corn and $9 soybeans, but they are meeting stiff resistance in and around those levels. Fresh news or some type of weather-related planting problem in South America is needed to boost prices. Farmer slamming the bin door shut at lower levels is also acting as a floor.

At the same time where we in Ontario are trying to bring in the soybean harvest our Brazilian colleagues in South America are planting. It has gotten dry in northern Brazil, but we all know it's preferred for planting weather. Needless to say, the South American planting window is moving into full bore. Any weather anomalies there, which affect that production, will have an immediate effect on our grain futures prices.

Geopolitics has also affected the grain complex with the problems that we have seen in Syria. The US dollar has been one beneficiary, but it has also been volatile having dropped to 94.883 on the US index on October 9th versus 96.385 on September 25th. Uncertainty in geopolitics is always bullish for the US dollar, but when it falls it is always good for grain futures prices. With its inverse relationship to our Canadian dollar it is a constant crop marketing challenge to get the balance right.

Commodity Specific Comments

Corn

The 168 bushels per acre corn yield projected by USDA in their October 9th report was especially healthy based on early spring weather. Keep in mind the skepticism that has been dashed with regard to that number. In fact, in nine of the last 15 years, USDA yields have actually increased into the January report. Don't be surprised as harvest totals continue to be counted across the American Midwest that this corn yield figure rises into the new year.

The corn demand reality is a bright light in a somewhat dark corn price world. Total demand for corn in the United States now is 13.755 billion bushels. That is huge and is unsustainable with any type of production hiccup at these current price levels. However, as we know that production hiccup has not come, but eventually it will. Corn farmers can at least put that in their back pocket.

The December 2015 March 2016 corn spread is neutral at -.1075 cents US. The December contract is currently trading in the lower 15% of the five-year distribution range. Seasonally, corn tends to trend up through early November.

Soybeans

The USDA boosted the soybean yield up to 47.2 bushels per acre, but this was tempered by a cut and harvested acreage of 1.1 million bushels. This was partially a result of those heavy spring rains in some areas. Compared to past years, the soybean yield is impressive and it is likely to grow into January.

The soybean complexes had a difficult time with the $9 level. When soybeans get too cheap the bin door slams shut seemingly around the $8.40-50 cents level, but $9 and over to $9.20 we see steep resistance. China continues to buy unabated. Demand remains strong, with US usage currently at 3.685 billion bushels.

The November 2015 January 2016 soybean futures spread is -.0475 cents US as of October 9th. The November soybean contract remains in the lower percentages of the five-year price distribution range. Seasonally the soybean futures market tends to tend up from here through early May.

Wheat

It is always difficult to be bullish on the wheat market with global supplies currently 670 million bushels higher than last year. Canada, European Union and Australia had their supplies maintained by USDA in the October 9th report. There is lots of wheat almost everywhere in the world and this will continue to weigh on prices.

In Ontario, wheat is being planted at a feverish pitch as of October 9th with wide-open weather. It is highly likely that the Ontario wheat acreage which last year was approximately 600,000 acres will breach 1 million this year. For many producers it is about getting back a rotation in southwestern Ontario.

The Bottom Line (Continued)

The optics of pricing grain in Ontario offer a unique window into the extra layer of management we require as Canadian farmers. The value of the Canadian dollar remains low at .7724 cents versus the US dollar but this represents a two-cent increase over the last two weeks as of October 9th. Simply put, corn valued at cash prices of $4.43 to $5.00 in Ontario and soybeans at $10.80-$11 looks much different than grain priced in US dollars to our American friends. So does foreign exchange give us a good price or is it just fooling us? Or is it simply bailing us out against the backdrop of a huge grain price slump?

The answer to that question is certainly varied across the Canadian grain world. For instance, if you contracted grain today for next year and our Canadian dollar moved to par, it would likely make you look like a genius even if you had an aggressive move in grain futures values. At the same time if the dollar moves back to par over the next 18 months with futures values gaining moderately, our cash price might not make any difference. On the contrary, if our Canadian dollar moved toward par with futures values falling significantly, it would be a cash pricing disaster. Thinking hard about this paradigm needs to be top drawer for all Ontario grain farmers.

Basis levels have actually been maintained fairly well even with harvest pressure. The Canadian dollar has helped, but with its recent move back up it is likely to erode Canadian cash values. Usually, at harvest time we export corn to the United States and eventually import it back in. However, it is never as smooth as that and producers will need to monitor that situation closely. Corn basis does not move on foreign exchange to the same extent as Ontario soybean and wheat basis.

So as we move ahead, harvest will continue both in the US and Ontario. Our Brazilian farmer colleagues will be planting soybeans at what many people think will become their biggest crop ever. Yes, the focus on grain surpluses is certainly there, but it never quite works out that way. Time can be a defining factor, because eventually supply gets interrupted in some form or another. That means to a large extent, marketing for Ontario farmers will continue to be a daily challenge. It also means there will be many marketing opportunities ahead. Risk management never grows old and capturing those profit opportunities remains job one.

Market Trends Report for September-October 2015

US and World

The August 12th USDA report was one of the biggest flashpoints of the year in grain markets. With the USDA seemingly shrugging off crop condition reports after heavy rains in the Eastern corn belt, grain futures succumbed to the bearish market environment. USDA numbers are the numbers that we trade and they will always be relevant, but surely they have caused much consternation in American farm country. As combines have begun to roll in both corn and soybean fields across the American Midwest, actual yields will surely be another telling sign about how right the USDA was in their August 12th report. Surely there was a lot of skepticism, but there always is. Measuring the factors that affect our prices still often proves a challenge.

On Friday, September 11th the USDA released their September report. In a nutshell, they reduced the projected US corn yield from their August report but increased soybean production. The USDA reduced corn yield down to 167.5 bushels per acre (13.585 bbu) but boosted the expected soybean yield to 47.1 bushels per acre (3.935 bbu) The old crop soybean ending stocks were pegged at 210 million bushels with the old crop corn ending stocks projected at 1.73 billion bushels. The USDA also set new crop ending stocks for corn at 1.59 billion bushels and for soybeans at 450 million bushels. Record yields for corn are expected in Arkansas, Georgia, Iowa, Kentucky, Michigan, Minnesota, Nebraska, South Dakota, Virginia and Wisconsin. Globally, the USDA increased wheat-ending stocks to 226.6 MMT, which reflected increase production in the EU and the Black Sea region. The global stocks to use ratio for wheat increased to 31.6%.

The computers at the CME initially stuttered on the new yield numbers, but soon corn was moving higher after soybeans initially dipped. At the end of the trading day corn was up $.12 a bushel, wheat was up 7 cents per bushel with soybeans rallying back to be unchanged at the end of the day. Even though crop ratings had never really changed significantly since June, the balance sheet for corn was seen tightening and prices responded accordingly. If the corn crop is realized it will be the second highest yield per acre and the third largest crop on record. The USDA left unchanged their forecast for Brazil and Argentinian soybean production at 97 MMT and 57 MMT respectively.

On September 11th, corn was higher but soybeans and wheat nearby futures prices were lower than the last report. The December corn 2015 futures was at $3.87 a bushel. The November 2015 soybean futures was at $8.74 a bushel. The December 2015 Chicago wheat futures closed at $4.85 a bushel. The Minneapolis December 2015 wheat futures closed at $5.11 a bushel with the September 2016 contract closing at $5.46 a bushel.

The nearby oil futures as of September 11th closed at $44.63/barrel up from the nearby futures of last month of $42.50/barrel. The average price for ethanol on September 11th in the US was $1.84 a US gallon vs. last month at $1.86 a US gallon.

The Canadian dollar noon rate on September 11th was .7532 US down from the .7646 US reported here last month. The Bank of Canada's lending rate remained to 0.50%.

Ontario

In Ontario crops are maturing with harvest set to ramp up very soon as of September 13th. In more northern areas, wheat harvest is wrapping up with corn and soybeans almost set for a long harvest run. In SW Ontario there have been some soybeans fields taken off, but the main harvest is still two weeks away.

At this time of year, “frost” is always part of the equation. However, in Ontario crops were planted early and a warmer summer than 2014 has advanced the crop further. There is no widespread concern that the crop might be shut down early as in other years when the crop was behind. Having said that, we're still not out of the woods with regard to frost. The Ontario crop is advancing nicely into the fall harvest.

Basis values have actually improved from the August report. The Canadian dollar in the 75-cent range has had much to do with that. However, it's also the time of year when old crop and new crop basis values move together with crops coming out of the field. The old crop and new crop prices for soybeans have moved together and corn also will make that switch into October. Producers need to be cognizant of that change at this time of year.

Old crop corn basis levels are .80 to $1.75 over the December 2015 corn futures on September 11th across the province. The new crop corn basis varied from .50 to $1.10 over the December 2015 corn futures. The old and new crop basis levels for soybeans have moved together for harvest from $2.00 cents to $2.28 over the November 2015 futures. The GFO cash wheat prices for delivery to a terminal on September 11th was $8.55 for SWW, $6.56 for HRW, $6.30 for SRW and $5.92 for Red Spring Wheat. On September 11th the US replacement price for corn was $5.77/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

USDA reports always served as flashpoints for market action. However, in a grain futures marketing environment where computer algorithms trade all the grain and large investment funds chase the headlines volatility has become much more acute than it was even 10 years ago. Crop conditions in early September are about the same as they were in late June but the market has moved down considerably. The USDA played a large part in that on August 12th with a report the trade was not expecting. Their September report substantiated much of that in soybeans but offered some hope with regard to corn. Needless to say, there are still onerous supplies of grain around the world.

Having said that, supply is still in flux in the United States. Actual combine yields will soon be flooding into the headlines creating actual change in the supply and demand balance sheet. The October USDA report always serves as somewhat of a harbinger of the actual yield picture in the field and the January 2016 report closes the books on final 2015 yields. Both of these reports this year will have a major impact on price. Acreage and yield in the October report will serve as the next market flashpoint.

The USDA maintained Brazilian soybean production at 97 MMT and Argentina at 57 MMT for their upcoming year. Planting will begin in October and producers will need to keep abreast of planting progress and conditions. The Brazil number just keeps rising and is likely to top 100 MMT in the next few years, if not this year. The specter of this and planting in October will have an effect on the futures price of soybeans and it is likely to be bearish.

World wheat production remains at record levels. Globally, the USDA increased its ending stocks for wheat by 5.1 MMT or 226.6 MMT. Of course, prices are historically cheap at contract lows and it is likely that wheat will be competing with corn as a feed grain. Historically, this is common and moving ahead any increase in the value of corn will be checked by a corresponding cheap price for substituting wheat.

Commodity Specific Comments

Corn

Corn demand remains very robust and will not be easily tempered when the supply hiccup comes along. However, 13.585 billion bushels projected in the September 11th USDA report is not a hiccup. It is a huge crop. Demand stands at 13.755 billion bushels, which means that ending stocks will be decreasing once again. The September USDA report can't be construed as overly bullish but it opens up the possibilities for less corn supply in our future.

Key in the short term may be the next USDA report released on October 9th. In the September 12th report USDA reduced the yield 1.3 bushels per acre from their August estimate. Another reduction of that amount would no question send corn futures higher.

The December 2015 March 2016 corn futures spread is neutral at -.01125 on September 11th. Seasonally, corn futures tend to trend down through early October. The December contract is currently trading in the lower 17% of the five-year price distribution range

Soybeans

With the USDA raising US average yield to 47.1 bushels per acre, it does raise the spectre of another raise in October. This combined with the bigger Brazil plantings starting in October and it doesn't help the soybeans bulls. The US domestic stocks to use for soybean are 12.1% with global stocks to use at 27.4%, both robust solid figures.

The October 9th USDA report will also be key for soybean prices. Aside from a possible increase in yield, acreage may be adjusted as well.

The November 2015 January 2016 soybean futures spread is -.03 cents on September 11th. This is showing somewhat of a bullish tone. The soybean futures market tends to trend down through early October. The November soybean futures contract remains in the lower percentages of the five-year price distribution range.

Wheat

Wheat seems to be always in bearish territory and the September 11th USDA report substantiated that. US domestic stocks were increased from 25 million bushels and world wheat stocks saw a 5.09 MMT increase as a result of increased world production. The Chicago wheat contract remains near its low.

In Ontario, wheat drills are set for a marathon of planting wheat this fall. In SW Ontario, much wheat was not planted last year. With an early harvest almost upon us, producers will be hoping to get all of that acreage planted plus more. Despite the low prices, I'd expect greater than 1 million acres in Ontario this year.

The Bottom Line (cont.)

There is always some skepticism about USDA numbers and market reports. Clearly though, they are the numbers we trade. Unfortunately, sometimes like in 2015 it doesn't all quite add up specifically the relative stable crop conditions over time but the huge volatility in price, this time negatively. Traders love the volatility because they trade both sides of it but when the USDA makes a somewhat illogical call, farmers lose big time. There is no fix for Canadian farmers. It is simply the reality that we have to keep in mind when hedging our grain.

We may see more of it in the next few USDA reports, specifically cutting back on production. However, while we have seen grain futures prices drop precipitously over the last several months the Canadian dollar continues to show weakness effectively mitigating much of this grain futures weakness in our cash prices. With a possible rate increase from US Federal Reserve chairman Janet Yellen in the offing, this bodes well for the value the US dollar and negative for the Canadian dollar. Balancing the trade-off between Canadian dollar weakness and possible grain futures rallies will continue to be our marketing challenge.

With harvest coming on quickly in Ontario, we should expect some temporary basis weakness at the height of harvest. Unlike last year, when corn harvest was delayed, it is more unlikely this year. Expect Canadian corn to be exported at harvest time and possibly imported back later, but that will much depend under Ontario crop size. Needless to say, 160 bushels per acre for Ontario corn is likely, setting up a possible scenario where import pricing doesn't happen in 2016.

There still is China and its so-called weak economy. That is affecting both soybeans and corn. China may also be changing their domestic pricing formula for corn, but it's only a theory now. That said it will remain key to grain demand. The challenge for Ontario farmers is to continue to work your marketing plan. Standing orders reflecting both basis and futures are always good. Market where you are profitable and comfortable. Market lows are often made in October. There will be many more grain-marketing opportunities ahead.