Canada Day is my favorite holiday of the year. There is something about this country that you truly appreciate especially when you have traveled far away overseas. When you get back and see the Canadian flag, you look at it a little bit differently. However, I must admit, Canada Day is always a seminal moment for me because usually I have my spring worked done or almost done and I can look forward to the future. It never hurts that the July 4th weekend is usually the litmus test for grain market direction.
That direction has been up lately as heavy rains across the American corn belt essentially trumped USDA reports last week. In the extreme southwest of Ontario we have a taste of that wet weather. On Canada Day I made my way down to Fort Malden in Amherstburg Ontario on the Detroit River. Fort Malden was an important British fort during the War of 1812, which help defend our country against the invading Americans. It is south of Windsor Ontario and of course you have to travel through beautiful Essex County to get there.
I live adjacent to Essex County, which is Canada’s most southern municipality. It has the longest growing season of anywhere in Canada. Unfortunately this past spring there has been record rainfall across much of this area similar to what they’ve had in the United States. It’s like a bit of a toehold into that very wet region. While going to Fort Malden on Canada Day, I passed through Essex farm country where thousands of acres had not been planted for the first time. The provincial agency Agricorp has extended the crop insurance deadline to July 7th in the hope that Essex County farmers might get some crop in the ground. Regrettably, on Canada Day the ground was still very wet. Hopefully, those Essex farmers get the opportunity to get things done.
As tough as that was seeing no crop in the ground in Essex County it was a reminder to me of the huge areas in the corn belt that have been affected by too much water this spring. We all know that markets have responded in a very affirmative way to the uncertainty of how much corn and soybeans are going to be grown this year. The June 30th USDA report, usually one of the biggest of the year has got lost in the shuffle. Call it hype, call it what you will, crops underwater were the news of the day.
In the June 30 USDA report, corn acreage was set 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. Essentially, the USDA report showed stocks a little bit less than expected and with the demand still on steroids combined with extremely wet weather in the American corn belt, prices have one direction to go.
Of course the question is what does bullish really mean in this market environment. The USDA had set goals of 166.8 bushels per acre for corn and 46 bushels per acre for soybeans. So does that corn number now back off to 160 or 155 or whatever? There is a similar question for the soybean yield? Or does “hot and dry” always trump too much rain? Is this price run-up a momentary reaction to media hype of flooded fields? Will July and August crop weather take off some of that risk premium the market is getting? Of course the road ahead is one nobody knows.
Statistics Canada weighed in this past week 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. Looking ahead that tells me that Ontario should be in an export corn pricing scenario most of the year and throughout next year. However, our crop is damaged too and projecting that far out here in Ontario remains difficult at this point. The Canadian dollar backing off below $.80 in the last few days always helps our cash price scenario.
Of course, the long and winding road is always lined with agricultural price prognosticators that thought they knew. The demand components for both corn and soybeans are so strong that even in a scenario where supply is being impacted, it won’t slow down anytime soon. If we could say anything, price volatility over the next several weeks may be extremely violent. The market has got their fresh news. It isn’t the best for market bears. It might not be enough for market bulls. It looks like the fight has just begun.