Market Trends Report for August-September 2015

US and World

This cropping season has been one of extremes in the United States. The crop got off to a very good start, but in the month of June wet weather-inundated parts of the Eastern corn belt causing all kinds of crop damage. The market was slow to catch on to what was happening, but finally did in and around the July 4th weekend. At that time grain futures prices had increased substantially only to retreat when dry weather returned. The August 12th USDA report stood as a barometer of how many acres were lost and what type of lower yield expectations the USDA was expecting. Market watchers were surely fixated on August 12th to give us a lot of answers about future price direction.

The USDA did not disappoint. On August 12th, the USDA shocked the market counterbalancing all of the bullish hype by printing increased yield numbers for both corn and soybeans. This was a complete contradiction on the market sentiment going into the report. The USDA pegged US corn production of 13.69 billion bushels with an average yield of 168.8 bushels per acre. Soybean production was forecast to be 3.92 billion bushels with an average national US yield coming in at 46.9 bushels per acres. Many market analysts leading up to the report were predicting the corn yield to come in at 164 and soybeans at 45 to 46 bushels per acre.

The market imploded downward on the USDA estimates with soybeans approaching limit down at one point and corn dropping $.29 a bushel. It was one of the largest turnarounds between average trade estimates and USDA numbers ever. You might argue that even the market bears were surprised. Old crop ending stocks for corn for pegged at 1.8 billion bushels with new crop stocks coming in at 1.7 billion bushels. The old crop soybean ending stocks came in at 240 million bushels with new crop stocks coming in at 470 million bushels, a very huge number. USDA actually cut soybean-harvested acres by 900,000 acres.The USDA also reported total wheat production at 2.14 billion bushels.

On August 14th, corn, soybean and wheat nearby futures prices were lower than the last report. Corn futures had the September 2015 futures at $3.64 a bushel. The December 2015 corn futures were $3.75/bushel. The November 2015 soybean futures was at $9.16 a bushel. The September 2015 Chicago wheat futures closed at $5.06 a bushel. The Minneapolis September 2015 wheat futures closed at $5.18 a bushel with the September 2016 contract closing at $5.75 a bushel.

The nearby oil futures as of August 14th closed at $42.50/barrel down from the nearby futures of last month of $50.89/barrel. The average price for ethanol on August 14th in the US was $1.86 a US gallon vs. last month at $1.94 a US gallon.

The Canadian dollar noon rate on August 14th was .7646 US down slightly from the .7693 US reported here last month. The Bank of Canada's lending rate remained to 0.50%.

Ontario

Wheat harvest continues across Ontario as of August 14th. As the harvest moved out of the Southwest both quality and yield improved. Ground Zero for quality issues seem to come out of the deep South West this year. Basis anomalies with regard to quality issues were evident in some cases. Wheat harvest continues in Eastern Ontario and producers are hoping for good harvest weather to bring this crop in.

Corn and soybeans are variable across the province, but generally in good shape. For instance there are some pockets south of Woodstock and in other areas of central Ontario where a lack of moisture has hurt both corn and soybeans. Of course, other areas, which had too much early heavy rains in the spring, remain challenged. 10% of Essex county's intended soybean acreage was not planted. However, as of August 14th it is likely that Ontario is setting up for a corn yield of approximately 160 bushels per acre. Soybeans are much more difficult to quantify, producers will be hoping for August rain showers to gain yield.

Basis values have actually being maintained even with the drop in futures value as the Canadian dollar continues to flutter in the $.75-$.76 US range. There is a straight conversion for wheat and soybeans with regard to this foreign exchange, but corn basis may be different. Historically we are setting up for the classic harvest basis with a big Ontario crop, exporting the excess out at harvest time and then importing back in later. However, it never quite happens as smoothly as that. Export markets this year have been into Europe, where the Duricade gene is not wanted. Needless to say, as it is now we are setting up for a big corn crop this fall, which will challenge basis levels in southwestern Ontario. Eastern Ontario will continue to enjoy strong basis levels and will likely export grain into Québec.

Old crop corn basis levels are .70 to $1.25 over the September 2015 corn futures on August 14th across the province. The new crop corn basis varied from .45 to $1.00 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $2.33 cents to $2.50 over the November 2015 futures. New crop soybeans range from $1.95 to $2.28 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on August 14th was $8.72 for SWW, $6.95 for HRW, $6.56 for SRW and $6.20 for Red Spring Wheat. On August 14th the US replacement price for corn was $5.19/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The August 12th USDA report was brutal to the psyche of the grain market. In retrospect, the hype of the early heavy rains over 30 day period inundating the Eastern corn belt were not enough to mitigate yield below the previous March USDA estimate. Essentially, it seems like almost everybody was leaning on the wrong side of the boat. When the USDA came out with even higher numbers for yield for both corn and soybeans it was like a trap door opening. The sellers couldn't get enough.

Of course, it is not over yet. However, corn harvest will be starting in southern Illinois very soon. It has already started in places like Texas and Oklahoma. Simply put, the August 12th USDA report has infused a new bearishness into the grain market, which unless it is stemmed within the next few weeks will be very difficult to break out of. Further to that, the August 12th USDA numbers may not be the highest numbers printed by the USDA this year. We cannot assume anything going ahead with regard to production.

The August 12th USDA report was a psychological blow, but it was not the only blow the commodity market took in early August. On August 11th, commodity markets woke up to the fact that China was devaluing their currency unit the Yuan. This fact alone pummeled the Asian equity and currency markets as well as Europe and North America. Undervalued Chinese currency means it's much more difficult to buy agricultural commodities from North or South America. Corn and soybeans dropped on that news just before the USDA report. Shakiness in the Chinese economy suddenly got even more real.

Of course all of this economic instability caused by the problems in China have only made the US dollar that much stronger. So, with all the problems that the commodity sectors is having, being priced in US dollars makes it that much harder. It's like canoeing upstream with the current increasing daily. Essentially, this is happening in a commodity world that is flat and depressed almost everywhere in every type of commodity. The grain markets are completely caught up in that.

Commodity Specific Comments

Corn

Skepticism is an honest reaction to USDA corn numbers published out of the August 12th report. In the next few weeks with different crop tours going through the cornfields in the United States it will be telling their results. Whatever happens, it is clear that this corn crop is huge. However, corn demand is currently sitting at a record 13.775 billion bushels, a good thing with supply so robust.

Weather has always been a critical factor to the corn crop currently growing in the United States. A lack of heat, especially at night combined with the El Niño weather patterns have boosted corn growing conditions. At the end of the day it looks like hot and dry will always trump too wet in our cornfields. As of this point it surely looks like this has happened in the United States this year.

The December 2015 March 2016 corn futures spread is at -11.5 cents as of August 14th. This reflects somewhat of a neutral position for corn. The five-year seasonal index shows that corn futures tend to tread up through early September. Currently, the December contract is trading in the lower 10% of the five-year distribution price range, which reflects just how cheap corn really is.

Soybeans

Soybeans had a bit of a double whammy on August 12th as the report actually increased soybean yield but also decreased harvested soybean acres by 900,000 from the USDA's earlier estimate. However, this was far less than was expected so the world was awash in soybeans at least for that day.

Demand remains strong for soybeans, but of course the Chinese situation is very fluid and will affect soybean demand greatly. At the same time conditions are ripe in Brazil for an expansion of soybean acres especially with the Brazilian currency being devalued against a strong US dollar. Argentina on the other hand, has its own domestic issues, which may limit any increase in soybean acres come this fall.

The November 2015 January 2016 soybean futures spread is at -.05 cents/bushels as of August 14th. This represents a somewhat bullish market position. The soybean futures market tends to tread up seasonally into early September. The November soybean contract remains priced in the lower percentages of the five-year price distribution range.

Wheat

Wheat remains bearish with supplies ample around the world. There has been tremendous heat in Europe, which reduced crop production and of course terrible quality problems in the Eastern corn belt of the United States. It is very dry in the northwestern United States wheat belt, but even that is not made prices ripple.

In Ontario wheat harvest is close to done with some producers still finishing up. Producers will be soon be turning to planning their wheat acreage for 2016. It is likely that Southwestern Ontario will get a lot more wheat acres in the ground this fall especially with soybean harvest starting earlier. 1.5 million acres of wheat may be in the offing.

The Bottom Line (cont.)

It is almost the time where crop supply is set. In the case of 2015 crops it looks like some of the biggest ever. With the August 12th USDA report behind us, there has being a recalculation of crop price expectations. If the crop in the United States gets bigger through the fall into January, we all know what price will do. Into September combines will be rolling in southern Illinois and we should have better expectations.

In Ontario the futures price drop continues to be mitigated by a low Canadian dollar currently fluttering in the $.76 range. This has been accentuated to some extent by the strong performance of the US Dollar buoyed by a growing and healthy US economy. It also might get even stronger if US Federal Reserve Chairman Janet Yellen announces an interest rate rise in the United States this fall. Whether that is already priced in is open to conjecture, but it is likely coming and the loonie will fall or remain weak under such a scenario.

The US corn export number may be overstated because of the strength of the US dollar. There is also some resistance to US corn because of the Duracade trait in some of the supply. If the US corn crop gets bigger going into harvest or into the winter, this may send corn-ending stocks up toward 2 billion bushels. It will take any urgency away from corn end-users to source supplies unless farmer selling completely dries up.

Of course there is also South America and we know that story. Farmers will be planning to get their soybeans in the ground in another eight weeks. For the Ontario producer looking at a big crop coming off starting in September, we've been here before. For crop yet unsold there surely will be future opportunities. The challenge is always to measure the market factors, which affect those choices. Standing orders for grain will always remain key even at times when market action seems quiet. You never know when the unexpected will come along in the grain markets. Risk management never grows old and as we careen into harvest daily market intelligence will remain key.

Market Trends Report for July-August 2015

US and World

As the calendar turns into late July and early August US crops continue their march toward harvest. July and August weather are critical for corn and soybean production. The 85.1 million acres of soybeans and 89.2 million acres of corn are damaged from their peak potential as they go into this critical weather. Heavy rains with record rainfall amounts have taken their toll. The question is, how much of a toll have crops paid and will summer weather provide them some opportunity to recapture some of that record potential?

On July 10th the USDA chimed in with their latest crop production report. The USDA actually lowered old crop ending stocks by 97 million bushels to 1.78 billion bushels. USDA also lowered the soybean ending stocks by 72 million bushels pegging them at 255 million bushels. On the new crop side of the ledger the USDA maintained their corn yield at 166.8 bushels per acre and soybeans at 46 bushels per acre. The new crop corn production estimate is at 13.53 billion bushels with a 1.6 billion bushel ending stocks. Soybeans are projected at 3.89 billion bushels with ending stocks coming in at 425 million bushels. The USDA also lowered all of its winter wheat production 3% from its June 1 forecast pegging it at 1.46 billion bushels.

The July report was somewhat overshadowed by the wet weather events over the July 4th weekend. The market had been buoyant on that news and the report did not really change anything. Crop conditions published by the USDA actually improved over the last two weeks with futures prices settling back a bit. The August report may surely have reduced yield projections from the USDA reflecting some of the weather problems. There'll also be results from the resurvey of soybean acres in Missouri, Arkansas, Texas and Kansas.

On July 17th, corn, soybean and wheat nearby futures prices were lower than the last report. Corn futures had the September 2015 futures at $4.20 a bushel. The December 2015 corn futures were $4.31/bushel. The August 2015 soybean futures were at $10.14 bushel. The September 2015 Chicago wheat futures closed at $5.54 a bushel. The Minneapolis September 2015 wheat futures closed at $5.67 a bushel with the September 2016 contract closing at $6.13 a bushel.
The nearby oil futures as of July 17th closed at $50.89/barrel down slightly from the nearby futures of last month of $58.56/. The average price for ethanol on June 30th in the US was $1.94 a US gallon vs. last month at $1.91 a US gallon.

The Canadian dollar noon rate on July 17th was .7693 US down from the .8017 US reported here June 30th. The Bank of Canada's lending rate dropped to 0.50%.

Ontario

In Ontario the soft wheat harvest has commenced in parts of Chatham Kent and Essex County. However, ripening of the crop has been slow, as cool cloudy weather has impeded maturity. The grades at this early stage have been satisfactory. Wheat harvest is expected to ramp up in the next few weeks across the province. Corn and soybeans, which have been damaged by water throughout much of the province, continue to rebound with warmer weather. Much of Essex County did get planted before the crop insurance deadline of July 7th. However, there were many fields left unplanted, which may mean September wheat planting this year in Essex.

Basis levels in Ontario actually improved greatly over the last several weeks as the Canadian dollar continues to lose strength. Old crop corn exports out of Ontario have been mitigated by the uncertainty surrounding Greece. However, producers with old crop are enjoying better prices. Depending on weather moving ahead, it is likely that the 2.055 million acres of Ontario corn will produce 300-330 million bushels of corn this fall. It will set up the classic historical situation where corn is exported into the United States with a harvest low basis. Time will tell.

The soybean crop looks tough throughout much of South and Southwest Ontario, as heavy rains have stunted growth in many locales. However, in Eastern Ontario and in select other places through the province the soybean crop looks very good. So it is variable, in fact, beans look like beans. August is always a critical month for Ontario soybeans. Where soybeans are the great liars with regard to their yield, at the end of the day they always tell the truth. Ontario farmers are certainly hoping for good soybean weather into August.

Old crop corn basis levels are .55 to $1.20 over the September 2015 corn futures on July 17th across the province. The new crop corn basis varied from .45 to .90 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.97 cents to $2.40 over the August 2015 futures. New crop soybeans range from $2.05 to $2.44 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on 17th was $8.76 for SWW, $7.39 for HRW, $6.68 for SRW and $7.01 for Red Spring Wheat. On July 17th the US replacement price for corn was $5.70/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

The psychology of the grain market has changed, but how much and for how long? Hot and dry usually trumps wet weather when it comes to crop damage. In many ways with futures prices retreating from recent highs many analysts might be asking themselves if the weather card for 2015 has been played out? Simply put, it looks like the specter of record yields have been taken away for this year. July and August weather will determine how and if some of these crops recover.

The US dollar has been strong in the last two weeks and this has made for additional gains in prices somewhat difficult. The wheat market has taken somewhat of the brunt of US dollar movement because of so many competitors in the world market versus American wheat. As the US dollar goes up, buyers switched to other sources. This is much more difficult with corn. Needless to say, with the problems that Europe is having with Greece, the US dollar is benefiting. That is always hard for grain futures prices.

It's an old cliché, but weather this time of year trumps almost everything. Yes, we had a period of tremendous crop damage from too much water, but July and August still mean so much. Corn is 69% good to excellent and soybeans were 52% good to excellent in the week ending July 17th. These ratings were somewhat better than expected and to some extent it proves the point that not every acre was drowned out and those that weren't in fact may be getting better. There is a great balancing act this summer with regard to the good and bad parts of the crop in the US corn belt. Crop weather moving ahead into September will significantly determine the size of what still is a very big crop.

South America remains a very important supplier to the world and the big competitor to our American friends. With prices somewhat higher rumours of South American corn and soybeans landing into the American Southeast have been a factor. China has also imported 35% more soybeans from Argentina than they did a year ago. This might say more about Argentinian politics versus Chinese demand, but clearly China has multiple suppliers for soybeans. Corn is a different matter. Domestic Chinese corn prices are higher than imported values and US corn may be needed in increasing numbers to fill a void. However, the second crop of corn from Brazil will mean for stiff competition.

Commodity Specific Comments

Corn

The state of the US corn crop remains in flux, but may be stabilizing from the end of the 30-day monsoon period, which hit in June. The USDA average yield of 166.8 may surely change in the August USDA report. The question is, by how much? Analysts differ on how much lower, but probably by just a few bushels. This is not the 2012 crop disaster event. USDA dropping the corn yield to 161-163 bu/acre would be more likely.

Corn demand remains strong, but no more at record demand levels, which was reached in June. A 25 million bushel decrease in exports in the July USDA report may reflect a slight weakening of demand. Still, 13.735 billion bushels doesn't lie.

The December 2015 March 2016 corn futures spread is -.1025 as of July 17 in this reflects a more neutral stance for futures. The December contract is trading in the lower 26% of the past five-year price distribution range. Seasonally, corn futures tend to trend down to the first week of August.

Soybeans

Crop condition reports from USDA will be very telling for the US soybean crop going into August. Also too, the August USDA report will reflect updated acreage numbers not seen previous. This may hold some surprises for soybean prices moving ahead. Needless to say, August rains usually make soybeans and for those acres, which are left in good standing, it's the same story again.

Although Chinese demand still rings very strong, the stock market meltdown in equities over the last month has caused some nervousness in their economy. It is only another variable to consider with the world's largest soybean consumer. Any hiccup like this within the Chinese economy will always cause some angst in the soybean complex.

Soybean futures spreads remain bullish with the November 2015 January 2016 future spread as of July 17th at -.06 cents. Net long non-commercial futures positions in soybeans have increased over the last several weeks. Seasonally soybean futures tend to trend up through early September. The August soybean contract is currently trading in the lower 12% of the past five-year price distribution range.

Wheat

The wheat market has been tempered by the high value of the US dollar and the problems currently seen in Greece and the Euro zone. Hot temperatures have also impacted the wheat crop in Europe. American wheat continues to have problems pricing it competitively in world markets.

In Ontario it's all about harvesting the 600,000 acres of wheat in the field. Prices have improved over past harvests as the Canadian dollar has had tremendous positive effects on cash prices. Sometimes the planets align with regard to wheat prices, yield and quality. Ontario farmers will surely be hoping for that this harvest season.

The Bottom Line (Cont.)

One of the pillars of marketing grain in Ontario is measuring the Canadian dollar movement and how that affects basis levels going forward. There is no question with the Canadian dollar reaching the 76-cent level on July 17th, that cash price opportunity is apparent for Ontario producers. It's always fickle to predict and especially fickle to combine it with rising futures prices to maximize revenue. Clearly though, in the summer of 2015 the lower Canadian dollar is creating opportunity to market grain effectively.

In Europe, Greece defaulted on loans to the International Monetary Fund, but also later agreed to another bailout package from the European Union. It is a difficult arrangement, but may serve as an example for what's ahead for other countries like Spain, Ireland and Italy. From a grain complex perspective this debt problem in Europe continues to cause nervousness in pricing. Nobody wants to get caught selling grain to buyers who may not be able to pay in hard currency. The quicker that Europe resolves these situations the better.

In Ontario crops mimic to some extent the problems in the US Eastern corn belt, but not as bad. It is likely that the Ontario corn crop will approach last year's yield level but fall slightly short. With the increased acreage in 2015 over 2014, Ontario could be a net exporter of corn all next year. However, weather will yet have it say about that. August rains will surely weigh in on Ontario soybeans as well.

The challenge for Ontario farmers is to continue to market their grain at profitable levels. The Canadian dollar will surely continue to be a daily watch. USDA weekly crop conditions reports as well as the August crop report will surely be telling for price movements. Of course, there is always the possibility of a black swan event incubating in the background. This is agriculture and the challenges continue to evolve.

Post-June 20 Special 2015

US and World

It has been a time of changing dynamics in both the United States and Ontario farm country. Heavy rainfall across the southern and eastern corn belt in the United States has completely changed the psychology and the grain market as we head into July. Parts of Illinois, Indiana, Missouri, Iowa and Ohio received more than 10 inches of rain in June throwing into doubt the record crop potential in those very important states. The grain market started to react to this threat to supply in late June, just in time for the very important June 30th USDA report.

The very wet weather in the United States trumped the impact of the June 30th USDA report early. For instance, corn in the top 18 producing states was 68% good to excellent on June 29th having dropped from 75% on June 8th. In Indiana, the corn was rated 46% fair to poor. Soft red winter wheat was also being blasted by wet weather causing serious quality concerns. With the release of the USDA report on June 30th of actual planted numbers based on a June 1st survey and quarterly stocks, the stage was set for explosive market action.

On June 30th, USDA pegged corn acreage at 88.9 million acres, which is the lowest corn acreage figure since 2010. The USDA put quarterly corn stocks as of June 1st at 4.45 billion bushels with soybeans pegged at 625 million bushels. Soybean acreage was set at 85.1 million acres, which represents a record acreage. The lower corn and soybean stocks were seen as bullish for the market and with the new crop seemingly underwater across the American corn belt it led to explosive market action on report day. Corn finished up the $.30 limit, while soybeans were up $.53 and wheat was up $.34 on the day, one of the biggest days in a few years.

On June 30th, corn, soybean and wheat nearby futures prices were higher than the last report. Corn futures had the August 2015 futures at $4.22 a bushel. The December 2015 corn futures were $4.31/bushel. The August 2015 soybean futures were at $10.49 bushel. The September 2015 Chicago wheat futures closed at $6.15 a bushel. The Minneapolis September 2015 wheat futures closed at $6.37 a bushel with the September 2016 contract closing at $6.54 a bushel.

The nearby oil futures as of June 30th closed at $58.56/barrel down slightly from the nearby futures of last month of $59.96/. The average price for ethanol on June 30th in the US was $1.91 a US gallon vs. last month at $1.88 a US gallon.

The Canadian dollar noon rate on June 30th was .8017 US down from the .8127 US reported here June 12th. The Bank of Canada's lending rate remained at 0.75%.

Ontario

In Ontario heavy rains have damaged crops throughout the province. The crosshairs for this heavy rain has been in Essex County where record rainfall in May and June has thousands of acres not planted as of June 30th. Agricorp has extended the crop insurance deadline for planting crops there until July 7th. Across the rest of southern Ontario heavy rains have hurt crops, but of course there is still a long season ahead of us. Producers as of June 30th are certainly hoping for summer heat and the moderation of heavy rainfall events.

Statistics Canada has weighed in pegging Ontario corn acreage at 2.055 million acres. Soybean production is pegged at 2.93 million acres with Quebec corn production at 920,00 acres and soybeans at 778, 000 acres. At this early stage it is difficult to tell how basis will be affected with that large corn acreage figure in Ontario. With the crop somewhat damaged from wet weather it would be difficult to achieve the same yields as 2014. July and August weather will surely be key.

For the 600,000 acres of wheat in Ontario, July will be the month when harvest will commence. Unfortunately, the soft winter wheat crop has taken unusually high punishment from heavy rains across Ontario. This will surely have an impact on quality. In fact, across the Eastern corn belt, much of the soft red wheat has been heavily damaged from excessive rainfall. Wheat prices have spiked much higher under these concerns. Ontario producers will surely be poised to take advantage of this.

Old crop corn basis levels are .50 to $1.05 over the September 2015 corn futures on June 30th across the province. The new crop corn basis varied from .25 to .90 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.78 cents to $2.30 over the August 2015 futures. New crop soybeans range from $1.50 to $1.97 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on June 30th was $9.32 for SWW, $8.26 for HRW, $7.60 for SRW and $7.78 for Red Spring Wheat. On June 30th the US replacement price for corn was $5.47/bushel. You can access all of these Ontario grain prices by viewing the marketing section.

The Bottom Line

Oh, how things change! For most of the spring grain futures prices have been going down or sideways and only two weeks ago it looked like more of the same unless there was fresh news. Of course, the fresh news came in copious amounts of rainfall slamming into young crops in the American Midwest causing much damage. Two weeks ago the wet weather had not turned into a flood as yet, but clearly is caught the market's attention. Leading into the June 30th report, this new psychology was threatening to trump the USDA numbers. It did that in spades and when USDA cut their quarterly stocks, the world for grain is a different place now.

The road ahead of course involves two of the biggest production months of the crop year, July and August. It's often said that July makes corn prices and August makes soybean prices as pollination takes place in July and soybean set their pods in August. It is the same this year, except for the fact that much of the crop is damaged in the big “I” states of Indiana, Illinois and Iowa. Add to the fact that only 62% of Missouri's 5.65 million acre soybean crop had been planted as of June 29th, we've got a big problem in our production fields. The bears that controlled the day in the grain market over the last several months have been knocked down a peg. This crop is going into July and August with one or two hands tied behind its back.

Of course, it wasn't supposed to be this way. Everything was leading up to benign weather boosting supply to unprecedented levels masking the record demand that continued unabated. US Corn demand is currently at 13.760 billion bushels, a record. It all great as long as you have record corn crops produced. Now, there's been a bit of a production hiccup and that demand will not be easily tempered. Noncommercial players in the grain market are dropping their short positions and getting long.

There are still a myriad of other factors affecting our grain markets such as the value of the US dollar, the softening in the Chinese economy and of course the macro economic problems that our European friends are having with Greece. These are important factors for grain demand, but at the moment with the 2015/16 crop in a bit of trouble in the United States it's taking the backstage. Acreage, yield projections and weather in the United States will certainly trump those concerns in the next several weeks.

Commodity Specific Comments

Corn

It is difficult to project how excessive rainfall does affect corn production in the United States. Yes, we've all seen the optics of too much rain making for yellow streaks in corn. However, wet weather is usually not as damaging as “hot and dry”. USDA predictions of a 166.8 bu/acre corn crop now seem a bit dated. However, is 163 bu/acre more like it, 160 or 155 bushels/acre? This will certainly be top drawer in the next few weeks.

Will the 88.9 million acre figure released by USDA on June 30th hold true or will it be cut in future reports. This combined with the continued record demand has the potential to cut ending stocks down to the 1.5 billion bushel figure. This old crop ending stocks figure will become the beginning stocks figure for the following year so it is incredibly important what happens. As of now, it looks like supply is disappearing much more than expected.

The carry in the December 2015, March 2016 corn futures spread is at -.0925 cents, which reflects a neutral to bullish position in corn. Seasonally, the five-year seasonal index generally shows corn trades down through early July. The December contract is currently trading in the lower 20% of the five-year price distribution range.

Soybeans

We all know that soybeans don't like wet feet, especially when they are young. Missouri, Arkansas, Kansas and several other states have many soybean acres yet to get in and weather will determine whether that happens. Certainly, final planted acreage in soybeans will be important this year with the crop damaged. Demand remains very high.

This demand is certainly having an impact on any cut in soybean stocks. With 625 million bushels left as of June 1st, a normal fourth-quarter demand could easily send ending stocks below 300 million bushels or farther. Much will depend on whether all the soybeans get planted and of course that weather in August.

The November 2015 January 2016 soybean futures spread is bullish at -.05 cents. Noncommercial demand for soybeans has turned up. Seasonally, soybean futures tend to tread down through early July. The August contract is trading in the lower 11% of the past five-year price distribution range.

Wheat

Wheat has been somewhat of the poster boy with regard to market bullishness. Of course, it is a bit of a double edge sword as the extremely wet conditions at the time of pre-harvest in the United States has likely damaged the wheat crop. This is put much skittishness into the wheat market complex and for those who have good wheat the price spike is very good news.

Soft red winter wheat will likely be taken off in Ontario within the next 10 days. It will continue into July and Ontario producers are certainly hoping any disease concern is no different than any other year. We can expect much higher acreage of Ontario wheat this fall as spring crops got off to an earlier start in 2014. This should provide a window for a plus 1 million acres winter wheat crop this fall.

The Bottom Line (Cont.)

There has definitely been a change in psychology for the grain markets coming out of the June 30th USDA report. However, this time around in 2015 it was more about crop damaging weather than it was acreage and quarterly stocks. Simply put, any hiccup in supply in 2015 was going to send prices higher. Throughout the last several months there has been no hint of that in production fields but the monsoon in the corn belt over the last month has changed all that. The challenge now will be to understand just how that will manifest itself in future price action.

We have in place all of the older factors in the grain markets that are still in play. As of June 30th, Greece has defaulted on their debt to the international monetary fund putting them in the same category as Zimbabwe, Sudan and Argentina. This certainly is bad for the Euro and good for the US dollar and who knows what else for the greater European economy. The bottom line is this instability in Europe will have an effect on currencies and the demand for commodities.

In Ontario, this demand for currencies manifests itself in the value of the Canadian dollar, which is incredibly important for our cash grain prices. Where the US dollar goes, our Canadian loonie usually goes the opposite. As futures prices go up in a bullish market environment the foreign exchange calculation in our cash prices is accentuated. We should be concerned about grain futures prices, but also about the value of the Canadian dollar. Yes, this is the default criterion for Canadian grain growers. In a rising bullish market, it gets even more important.

It brings us back to volatility. We know there has been a change in our grain markets, but how much of a change in what will happen going forward? For instance, the USDA has pegged corn production at 166.8 and soybean production at 46 bushels per acre. On July 10th, we may get our first indication of how USDA thinks that may be changing. At the same time, market weather is so important and even more accentuated under the current circumstances. This will lead to much more violent price movements up-and-down. It will surely challenge your marketing acumen.

In Ontario we are headed into July and August with hope for very good wheat harvest and some weather kindness for corn and soybeans. It would also be good to see Essex County get planted. Fresh market news of damaging Midwest rains has certainly spurred prices to higher levels over the last few weeks. That said there are never any guarantees in this agriculture business. Daily market intelligence will remain key especially with our two-pronged look at grain futures and Canadian dollar values. The challenge will remain for Ontario farmers to market where they are comfortable and profitable. Standing orders for grain will remain key during this critical time.