Its that time of year again. Canada Day is just around the corner and that means many things to many people. In my own case, I like to have my soybeans well on the way to being sprayed by Canada Day. It doesn’t often happen, but it never hurts to have a goal. I mean at some point you have to let the crop go and Canada Day serves as a great benchmark.
Of course this time of year Canada Day coincides with another great flashpoint in our agricultural markets. On June 30th the USDA will release a myriad of production reports, with actual planted numbers from their survey of US producers. Along with that we will get the quarterly stocks report, it will be a potpourri of information to tip agricultural traders. Limit moves in grains often happen at this time of year. In many ways, if there are no problems at this time of the year, many traders think that the crop is made.
Of course farmers are always bullish. Why would I gamble putting all that money out in the mud in the spring hoping something will grow unless I was optimistic? The USDA has been expecting a corn crop of 91.7 million acres since their March survey. Of course at the same time they are expecting an increase of soybean acres up to 81.5 million. As all farmers know, on June 30th this all changes. There should be some price fireworks to completely redefine where we are going.
The bias in the futures market from what I can see over the last few months has been a lot more soybeans and much less corn. However, in March when USDA came out with that estimate, I think we all felt that there would be more corn acres the 91.7 million. The spring planting season was one of the best in years and it seems only reasonable to believe that corn acres will be up from 91.7. However, you look at a cash price map for corn in the Western Corn Belt and you see prices that start with $2. So even though it was a very good spring for planting, you can’t blame farmers for not growing corn when profitable prices were not had.
So it is very difficult to know exactly what will happen on Monday. There are many analysts expecting over 82 million acres of soybeans. I think that there will be a big surprise in acreage, but I’m not sure whether that will be in corn or soybeans. Simply put, I think one will be heavy on acres and the other will be light because it. My wild guess would be corn, but we will just have to wait and see.
The great litmus test for crops going ahead doesn’t have a lot to do with acres but has much more to do with the weather. My question is how much does wet feet affect crop yield. Sure, in the northwest of the US Corn Belt we are seeing media reports of flooded crops. However, at the same time, there surely will be area after area where rain makes grain. There seems to be no heat dome of doom on the horizon.
In Ontario, many crops are suffering from too much water and wet feet. Québec is the same way. I had 15 inches of rain last year at this time, so this year I’m taking a timeout. Knock on wood; I’m winning with adequate rainfall so far. Needless to say, I am expecting Statistics Canada to come in with an Ontario corn estimate below 2 million acres. I’m expecting Ontario soybeans to be close to 3 million. Right now, the Ontario crop doesn’t look that good. There is a long way to go, check the weather for progress.
So that is the supply side of our agricultural economic equation. We will see if the weather will cooperate. On the demand side, good livestock and ethanol demand is pushing hard. Any pickup in the supply equation will be quickly covered by good demand. In Ontario, the Ontario Ethanol Growth Fund continues until December 31, 2016. That means that every liter of ethanol produced in Ontario will continue to be subsidized, solidifying demand here. A future of new bio-products in Ontario needs to be nurtured to create new demand for our grain crops.
The great equalizer for Canadian farmers still remains the Canadian dollar, which has been surging above $.93 over the last week. That was not supposed to be the headline in late June 2014. Bank economists were promising us $.85 US by the end of 2014. Let’s just say they still have time.
So next week at this time we will just be coming off Canada Day. It’s always a lot of fun, but we’ll also have a completely new roadmap on our agricultural commodity prices. Key as always is to be hedged in front of the report. Of course, we are farmers and we hope prices go up from there. Remember, we are optimists. We are always long.