As January USDA final reports go, this past Tuesday wasn’t so bad. I say that because the January USDA report has quite a history. For many years and probably even in subsequent years you might see limit moves in grains on the January final USDA report day. There is something about the USDA being final about a crop that is in the rearview mirror. This past Tuesday there was no limit move and in fact the USDA caught the market leaning slightly the wrong way. We saw moderate gains in grains last Tuesday. In such bearish times, that came as a bit of a surprise.
In the January 12th USDA report, the soybean crop was actually lowered, pegged at 3.93 billion bushels. This was one percent below the November report with a national soybean yield average reduced to 48 bushels per acre. This continues to be a very impressive yield for last year’s US soybeans, but just the fact that the crop did not grow bigger into January was against the bearish momentum of the market. Soybeans finished with double-digit gains on report day, with ending stocks for 2015/16 also being cut down to 440 million bushels.
Corn was a bit of a different story with US ending stocks being boosted to 1.802 billion bushels, up from the 1.785 billion bushels reported in December. The USDA cut 53 million bushels off their Dec estimate putting corn at 13.6 billion bushels. This is not necessarily bullish, but is not overly bearish as pre-report estimates were. The US pegged the national corn yield at 168.4 bu/acre.
Wheat was as bearish as usual, except for the fact that wheat plantings were down. For instance, the USDA said that farmers planted 36.6 million acres to winter wheat this past fall and that was almost 3 million acres below the range of pre-report expectations. In many ways we are grasping at straws here in such a bearish environment, but the January USDA report did give us some bullish nuggets and to some extent wasn’t as bearish as expected.
Of course here in Ontario you could almost make an argument that we are a bit numb to the pain. Of course the reason is the low value of the Canadian dollar, which actually closed under $.70 US this past week. As I’ve said almost continually over the last 18 months the whole story in Ontario grain pricing is the Canadian dollar. With futures prices so low we have cash prices approaching $4.75 a bushel for corn and $12 for soybeans. In fact, the cash prices available to Ontario producers are higher than in 2015 at this time. If there is ever a rally in the futures prices, which is a big if, we will see accentuated cash prices here in Ontario.
This is happening in an economic environment, which is deteriorating in Canada. With the price of oil retreating down to $30, it’s very dark for the Canadian economy. Unemployment is rising, the loonie is tanking and I’m sure both Prime Minister Trudeau and Finance Minister Bill Morneau are scratching their heads. There will be nothing easy about stemming the bad Canadian economic news.
Some of the economic predictions have been ugly. This past week, a leading Canadian economist predicted the loonie would continue to fall to 59 cents US. Of course, who knows where the price of oil is going. On top of this, there is some thought that the Bank of Canada governor will reduce interest rates in the coming weeks. That’s negative for the loonie, positive for our cash grain and livestock prices. We can only hope, for our greater Canadian economy, it turns around soon.
As an aside, Canadian agriculture is benefiting from this economic turmoil. I cannot emphasize enough how Canadian cash grain prices are actually higher than last year even though futures values are much, much lower. This has only been accentuated in the last few weeks. It is been true for over a year now. If the dire predictions come true, that Canadian dollar might lead to some very surprising high cash grain prices in 2016.
Of course to get there we will need some type of a rally in grain futures prices. The January 12 USDA report was somewhat of a wake-up call in an environment shaped by the grain bears. We might have had big crops in US fields last month, but maybe we got ahead of ourselves. There doesn’t seem to be any bearish news coming out of South America, so maybe in the end the bears might win the day. However, I would say it is likely that we drift toward the March USDA report, where fresh news might be the impetus for a grain futures rally.