Market Trends Report for March-April 2015

US and World

You can feel it coming. That is spring. AS we turn the calendar over into March, it always represents a time of hope across farm country. In Ontario, a very tough cold February is in the rearview mirror and snow is beginning to melt. It is just like that across the American corn belt except more so. Farmers are beginning real hands-on preparation to move to the fields in a few weeks. Just as farmers are preparing to get into those fields, the grain markets are also focusing in on potential acreage for 2015. The USDA weighs in on those acreage projections on March 31st.

The March 31st USDA prospective plantings report is one of the three major reports of the year. So the March 10th USDA report is often looked at as a minor affair with regard to price action. 2015 was no different. On March 10th the USDA lowered domestic corn ending stocks by 50 million bushels down to 1.778 billion bushels. However, the USDA also increased feed and residual use by 50 million bushels and exports by 50 million bushels. The US corn stocks to use ratio declined to 13%. The USDA also lowered global corn ending stocks by 4.4 million MMT.

Soybeans have been fixated on South American production fields now into the home stretch of their harvest season. The USDA on March 10th did not change the US domestic supply and demand tables leaving ending stocks at 385 million bushels. They left Brazilian and Argentinian soybean production at 94.5 MMT and 56 MMT respectively. In the wheat market the USDA increased wheat used for seed by one million bushels. US ending stocks declined to 691 million bushels and the stocks to use ratio declined to 33.1%.

On March 13th, corn, soybean and wheat nearby futures prices were lower than the last month. Corn futures as of March 13th had the May 2015 futures at $3.80 a bushel. The May 2015 soybeans were at $9.74 bushel. The March 2015 Chicago wheat futures closed at $5.02 a bushel on March 13th. The Minneapolis May 2015 wheat futures closed on March 13th at $5.67 a bushel with the September 2015 contract closing at 5.80 a bushel.

The nearby oil futures as of March 13th closed at $44.84/barrel down from the nearby futures of last month of $51.09. The average price for ethanol on March 13th in the US was $1.82 a US gallon vs. last month at $1.78 a US gallon.

The Canadian dollar noon rate on March 13th was .7811 US down from the .8024 US reported here last month. The Bank of Canada's lending rate remained at 0.75%.

Ontario

In Ontario, a very tough last eight weeks of winter seems to have broken. Temperatures above freezing are melting winter snows. There is actually some harvest activity in Ontario fields as some growers have got back into corn left over winter. This corn is testing between 16 and 18%, a drop of approximately 40% since it was left in December. Needless to say, farmers are focused on the spring planting plans and that crop mix will surely determine basis levels come this fall.

Basis for corn has actually softened to some extent across the province, but has withstood some of that depreciation because of the lower value of the Canadian dollar. Any American corn coming in now will be on older contracts. Cash values above $5 dollars for old crop is widely seen in Eastern Ontario. Vessels are scheduled to dock into the east when the ice clears having implications for lower basis levels. At a certain point Ontario corn may return to import pricing.

The US basis for soybeans has also softened over the last month despite the lower Canadian dollar. Capacity cutbacks at some Ontario crushers have forced this. However, with the Canadian dollar weakness it is almost transparent to farmers. Needless to say, in this currency environment checking the basis is extremely important when pulling the sales trigger.

Old crop corn basis levels are .80 to $1.00 over the May 2015 corn futures on March 13th across the province. The new crop corn basis varied from .40 to $.95 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.85 cents to $2.15 over the May 2015 futures. New crop soybeans range from $1.65 to $2.20 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on March 13th were $7.32 for SWW, $6.87 for HRW, $6.36 for SRW and $6.75 for Red Spring Wheat. On March 13th the US replacement price for corn was $5.16/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Going into March we've seen more decline than sideways in the grain markets. To some extent this has been mitigated in Ontario by the declining Canadian dollar. However, in South America harvest is heading toward completion with record crops coming out of those fields. A Brazilian trucker strike caused somewhat of a hiccup in that process as diesel fuel became scarce across the country, but that has fizzled as of late. Those soybeans will eventually be delivered to ports and the Safrinha corn will get planted. Our old crop is in the rearview mirror; the focus now is squarely a new crop.

Like a raging bull, the US dollar has been on a rampage currently breaching the 100 level on the USDX. This is extremely significant with regard to our grain futures prices and commodities in general. In fact, this represents a 12-year high in the US dollar, which acts as a brake on agricultural prices going higher. A high US dollar results in higher commodity prices for foreign buyers. As we head into spring of 2015, the specter of an even higher dollar after a US interest rate hike will likely continue to put a damper on our futures price horizon.

At the same time that the US dollar is rising higher, it is having the opposite effect on the Canadian dollar. While the American economy is growing strongly, it is not so for much of the Canadian economy. With the price of oil at low levels Western Canada is not the job engine it once was. On the other hand a lower Canadian dollar is good for Ontario and this was recently justified as Ontario leads all provinces in economic growth, the first time in 15 years. Needless to say, the much lower Canadian dollar into the high 70s US continue to cushion Ontario farmers from substantial price declines. As we move ahead in 2015 this remains the story in the Ontario grain market.

It remains a bearish situation compared to where we have been over the last five years regarding grain fundamentals. However, there is dryness in the US southern Plains, which may be working itself into the American Midwest. It is certainly affecting standing wheat in the United States. South America despite their record crop still has their infrastructure problems. With Argentina having a 35% export tax on soybeans, the situation there will remain muddled. So there is enough political instability in the world to create that unexpected Tuesday of explosive price movement. 2015 will probably not be telescoped as a year just like the others

Commodity Specific Comments

Corn

Despite the sideways to lower movement of corn futures over the last month, potential exists for future price appreciation. Corn demand at present is at record levels of 13.695 billion bushels. Even though we have had record crops, ending stocks continue to decline currently at 1.777 billion bushels. Even with corn planted acreage of 89 million acres with normal yields in 2015, ending stocks could be cut to 1.2 billion bushels as demand continues to grow. This is unsustainable in the long term unless price goes up to mitigate some of that demand. As it is now, corn demand is extremely robust.

Focus surely will be on the March 31st USDA Prospective Plantings report and the expected lower corn acreage number. It is expected that US corn acres will plunge below 90.6 million acres, which were planted last year. If that number is significantly down to 86 million, we could see a turnaround in prices on March 31st. Variations on that theme have similar direct pricing implications.

The corn futures spreads are neutral with the May 2015 to July 2015 spread at -.07 cents bushel. The noncommercial traders continue to liquidate their net long futures positions in the corn market. The May 2015 corn contract is currently trading in the lower 15% of the five-year distribution range. Seasonally, corn futures tend to trend down through mid-March.

Soybeans

Soybeans are starting to feel the true weight of the South American production numbers. The crop of 94.5 MMT in Brazil and 56 MMT in Argentina are finally coming off the fields and arriving in the ports in big numbers. Argentina is somewhat delayed both in production and with a heavy export tax. Needless to say, these beans are being met with robust demand from China. The Brazilian Real is also acting like the Canadian dollar, in that Brazilian farmers are receiving much more for their soybeans in their domestic currency based on the strength of the US dollar.

This devaluation in the Brazilian Real may cause even more soybeans to be grown next year possibly up to 6% more. That is on the bearish side. However, back in the United States we will be getting news on March 31st of the quarterly stocks report. The USDA has had soybean stock errors before in these numbers, which will be key for the immediate short term old crop pricing.

The immediate short-term outlook for soybeans is sideways based on a May 2015 July 2015 future spread of -4 cents a bushel. The May soybean contract is trading in the lower 8% of the last five-year price distribution range. Seasonally after a selloff in March, the soybean market tends to rally through early May.

Wheat

In the northern hemisphere, wheat will be coming out of dormancy. Dryness in the American southern plains is causing concern. However, there is also lots of concern in the Ukraine and Russia, where large acreage could be compromised. Intelligence from that region may be always suspect and this year, more so with the political violence in the region.

In Ontario, farmers are anticipating good things as always as the snow recedes. However, that can't take away the difficult conditions much wheat was planted in last November. The 600,000 acres of wheat in Ontario is suspect and the acreage that is kept will surely fall.

The Bottom Line (cont.)

The focus now will be on the March 31st USDA report. It is a refined surveyed based look at the actual acreage numbers, which will be planted in the United States this year. Earlier during their Outlook Forum, the USDA released a preliminary number of 89 million corn acres and 83.5 million acres of soybeans. On March 30th this is likely to change and along with the quarterly stocks report will give fodder for headlines, which will be traded by the noncommercial interests. This might make for an explosive day.

Private firms have estimated US soybean acreage to be upward toward 88 million acres. Last year in 2014 we saw a 7 million acre increase over the previous record US soybean planted area. It is unlikely that we would see the same type of increase or even half of that. Of course nobody knows and that is why there is such drama leading in to these USDA reports. March 30th report can be one of the most volatile.

In Ontario we have the same type of estimation regarding our crop acres distribution. Will Ontario farmers grow more than 2 million acres of corn? Will Ontario soybean acres be over 3 million acres? With the Canadian dollar being in the 78% range will this affect the crop mix? Of course, will the Canadian dollar fall even further making for basis appreciation throughout 2015? It is a long road ahead.

Wheat may certainly see some fireworks this year, but it is too early at this point. The situation in Russia and the Ukraine remain somewhat troublesome. This is as an aside from the wheat crop, which is compromised in the growing region. It is likely to be a focus of some market excitement this year.

Of course, weather is always the biggest consideration going forward and nobody knows what that will be. Keep in mind, if March 31st gives us a lower corn acreage number than expected, a repeat of wonderful 2014 growing conditions will be a prerequisite to satisfying a growing demand for corn which may top out at 14 billion bushels in 2015. Any weather-related dryness, bringing yield down from 2014 levels will mean a rise in price to ration demand.

The challenge for Ontario farmers is to measure all of these considerations with a particular focus on the value of the Canadian dollar going forward. The depreciation in the Canadian dollar gave an unexpected bonus on basis last fall and it continues. Hedging that foreign exchange risk is always difficult. Daily market intelligence will help in that regard. The road ahead to March 31st will likely be very focused for grain traders. After that, we're off to the races. Preparing and measuring your risks during this time is very important.

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.