Eastern Canada Corn Basis In Flux As Loonie, Late Fall Weigh In

Corn snow    This fall has been horrendous.   I say that because weather is always our kryptonite as farmers.  It either rains too much or too little it’s too cold or too hot, you know the drill.  2014 has certainly been a challenge for me and other farmers in southwestern Ontario.  I finished soybean harvest this past week with the help of a neighbor.  I have the combine capacity to do my work all myself but after the latest started of my career on October 27 with rain forecast almost every day it got extreme.  So we move on with hope for the sun to shine.

However, I don’t know if it gets better.  In Ontario test weights for corn are low and moisture is very high.  Of course this is in an environment where it rains almost every other day.  Corn is being imported in Ontario but that will certainly stop.  Basis levels are much higher in Canadian terms than they have been in several years.  Corn harvest has the potential to turn into a quagmire.  I don’t want to go there and I’m not wishing that.  Keep safe out there.

It is a fall where for the second time in my career I didn’t get my wheat drill into the field, soils were just too wet.  I got into a discussion about tillage and wet soils on twitter the other day.  I said that less is more.  When I have wet fall soils I just leave it for the next year.  A Canadian winter is always good with that freeze thaw action.  It is an indication of how difficult this fall has been on a drive to London Ontario today.  There was almost no fall tillage done along the way.

Of course this is agriculture and as farmers we are used to difficult conditions.  What is another constant are our grain markets, which continue to boil under tremendous surpluses.  On Monday, November 10th the USDA will chime in with their latest estimates and adjustments on US crop yields.  I think there are test weight issues in US corn, especially in the northern plains, which will ultimately have an impact on USDA predictions for yield.  However, it may not show up until January of 2015 and maybe more likely not even until September 2015.   Test weight is insidious; it shows up at the end of the day.

Of course price action is always fickle at best.  We have just gone through the October rally boosting both corn and soybean traces upward, enhanced by a Canadian dollar which has been dropping.  On Monday we should learn if the USDA increases its corn yield estimate up over 14.5 billion bushels and soybeans over 3.9 billion bushels.  These are both records, supply on steroids so to speak.  With such a difficult year in Ontario and Quebec, its difficult to believe it’s all so true.

Informa last week came out with their grain market estimates.   They pegged the US national corn yield at 174.4 bushels per acre and 47.9 bushels per acre for soybeans; stones throw from USDA estimates.  Keep in mind, there are all kinds of estimates out there and this year, they’ve numbed our senses.   However, what also should numb your senses are the demand statistics, which are lights out.

Corn demand alone stands at 13.655 billion bushels a record and almost twice what the US corn crop yielded when I started farming.  Soybean demand stands at 3.583 billion bushels, which is another record.  I have said it all year that despite the huge supply coming into the marketplace farmers could always put the big demand numbers in their back pocket.  It will ultimately be our savior within this low price environment and as we move into 2015 that should come into fruition.

The situation in the basis market is very fluid.  Corn in Quebec is of bad quality, grades 3, 4, 5 and worse.  In Ontario, there are quality issues as well, but not as bad.  This has put cash basis in flux and with the Canadian dollar dropping into the 87 cent level, it means grade 2 quality corn is gaining basis traction.  With wet weather holding harvest up, real basis appreciation spot bids may become very real.  It will make our corn marketplace in Eastern Canada very active into 2015.  “Unpredictable” may be another way of describing the market structure.

In my mind, market lows in grains are in the rear view mirror.  That’s doesn’t mean $8 corn is around the corner, quite the contrary.  However, this brutish fall, which is 2014, is redefining our basis market structure and most certainly 2015 spring planted acres in Eastern Canada.  Yes, we’ve been here before and it’s never easy.  A few weeks of sunshine would be just the tonic we need.