It is been an uneven week in Ontario. Heavy rains have inundated many areas of the province. At the end of the day there’s not much you can do when crops are underwater. We just hope that those drainage systems that are so important work to top efficiency. It is hard to say how this will impact final yield, but this is not 2014. I do not expect the record yields for corn in the United States or Ontario this year.
The precipitation this week resembles a classic summer pattern. The forecast was for storms and severe weather and that’s exactly what we got. I farm over a 9 km area. I got 3/10 of an inch of rain on one farm and 2 inches on the other. Just down the road from where I got 2 inches, the neighbor got 2.5 inches. That’s really not weird weather. It’s kind of normal this time of year in southwestern Ontario. As farmers, we face this uneven playing field all the time. Roll the dice.
Of course rolling the dice is something that we not only do in our production fields but also with our marketing. The last time I checked corn was not at $8/bu anymore so it is a constant with regard to figuring out how the market factors are playing. The Canadian dollar has had a little bit of renewed strength this week currently at about .8137 US. It’s all relative, especially when we think of the par dollar 16 months ago. We all know that if we ever got a grain futures spike, this Canadian dollar value would result in a lot higher cash prices. So far 2015 has not yielded that.
The USDA chimed in last week with their June report. The USDA estimated soybean production would come in at 3.85 billion bushels with average yield staying at 46 bushels per acre. The USDA also pegged corn production of 13.63 billion bushels at 166.8 bushels per acre. The USDA pegged old crop ending stocks at 1.876 billion bushels. The old crop ending stocks for soybeans were cut to 330 million bushels. The new crop ending stocks for soybeans were also cut down from 500 million to 475 million bushels, still very onerous stocks.
On the world stage old crop corn ending stocks came in 197 MMT which was above the pre-report estimate 192.4 MMT and the May number of 192.5 MMT. On the soybean side of the ledger, it was a bit different as both old crop and new crop global soybean stocks were lowered. If you are looking for a silver bullet here, there really isn’t one. Grain stocks are still huge and it’s going to take a big supply blip in US production fields to send prices a lot higher.
So are we looking for some type of movement in grain futures to help us out this summer? Of course we are, we’re all farmers here and despite how onerous grain stocks are that will never change. It would seem unlikely, but our hope springs eternal. Of course the other question is what will happen to Canadian cash prices in the next three months with or without the futures price spike?
Basis can be a very funny thing, but I have learned over the span of a career that at the end of the day it is the truth. Regardless of how basis is calculated, it is the value which grain is moved at. Typically, in Ontario basis is the worst at harvest time and gets better the rest of the year. This can be especially true for corn, as we exported at harvest time and depending on what our production is, import some back in, creating higher import prices. However, at the end of the day the Ontario and Québec basis has a lot to do with our own crop size and quality. Of course, there is always that Canadian dollar in the background changing everything.
In Ontario this year we have about 2.2 million acres of corn and if we have yields about the same as last year will be looking at about 352 million bushels of corn on the ground this fall. That means that we will have to export corn out of Ontario at export values. Generally, this means we export corn to the United States, which is the largest producer of corn in the world. I’ve said it many times, that is like exporting snow to Canada in January. Later, after we’ve used up our supplies, we import back in. However, up until last year we have not been importing anything back in. Ontario had produced enough to be almost at export positions all year. 2015 is shaping up to be the same way. That means lower basis values this fall.
Of course, that means that we will be depending to a large extent on the Canadian dollar to bail us out once again. Yes, our bank economists are talking about a $.75 dollar. However, to Canadian farmers that’s just noise. We will prefer a future spike and a dollar dive at the same time. The challenge will be to seize that opportunity when it comes. In Canada, we know that drill. Daily market intelligence will be key.