USDA Follies: New Market Realities For Ontario Farmers

In Ontario, crops are burning up.  It’s the night before Canada Day and I am expecting rain in the morning.  No, this is not 1988, when temperatures were 100°F and winds blew like a blast furnace.  This is simply 2016, where Southwestern Ontario had the driest June in several years.  We have become unaccustomed to the words “hot and dry” over the last two years.  However, it would seem in 2016 “hot and dry” are back in vogue.

My corn is roping up like pineapple during the day.  I never liked to see this but over a 40-year career I have become used to it.  The agricultural scientists tell me that the roots are searching for moisture, which is a very good thing for later when the rain comes.  The leaves go into some type of defensive posture during the day and things look much more normal at night.  Needless to say, if the dry weather persists it will change the whole dynamic of our Ontario corn market structure later this year.  Nobody dials in a poor provincial average anymore. If we have persistent dry weather in 2016, it means major corn imports come 2017.

Of course, give us some moisture at a moments notice and that all changes.  It is a constant challenge of farming dealing with the many weather demons that come along.  That likely will never change.

Ditto for our agricultural commodity markets.  Last Thursday the USDA came out with their much-anticipated June 30th report.  Since the USDA had predicted 93.6 million acres of corn to be planted in the United States on March 31st, analysts have been saying that that is too much.  About the same time the soybean price started to rise and there was much anticipation in US corn country that there would be a switch to soybeans.  Leading up to the June 30th USDA report I felt there were too many people on one side of the boat where everybody was saying less corn acres.  It was just a guess.  So this morning when the USDA announced an increase in US corn acres up to 94.15 million, corn market bears started to run wild.  This combined with an increase in quarterly stocks above the highest trade estimates set the corn market plunging.  The nearby futures plunged $.14 testing contract lows.

Soybeans on the other hand were pegged at 83.69 million acres, which was very close to the average trade estimate.  The soybean stocks were at the high-end of analyst estimates at 870 million bushels.  This was high, but the acreage number for soybeans was expected by many to be higher and partly because it did not get there, soybean prices rose sharply on this reality.  The nearby futures rose $.30 on the day. The soybean acreage number is not enough, especially if the crop gets in trouble.  Clearly, we will need rain in August.

So, in many ways you have the tale of two different markets, going in different directions.  The December corn contract tested contract lows, while the November soybeans recaptured many of the losses over the last few weeks and looks headed toward $12 a bushel.  No one knows the future, but soybeans have the juice and corn and wheat have none of it.  Of course everybody wonders what is next?

What I hope next is rain, because in order to have great market opportunities I need something to sell.  Ditto for the rest of Ontario.   Needless to say, there are some warped market realities right now.  You have market lows in corn and wheat but soybeans seem to be off to the races.   It would seem that our American friends were not tempted to switch to soybeans or modern management plans and modern machinery had that corn planted before the market rally in soybeans made everybody quiver.  It’s all in the rearview mirror now.  The market will decide who wins and loses.

Market action leading up to the June 30th report had the grains going down, partly because of weather changes coming to the US Midwest.  This weekend rains are moving through the American Corn Belt, which had not been previously expected.  However, weather forecast at this time of year can be very fickle and it will only lead to a very volatile market environment.  The latest USDA report just makes it more so.

Long-term weather direction toward August is looking drier for the American corn belt.  This will be tough for those top pods on the soybeans.  In the meantime, in Ontario we will need moisture to have normal crops.  If we miss this for another week, crops will be marching straight backwards.  That will change the dynamics of our agricultural commodity market structure.  However, I don’t really want to go there yet.  We’ve got a 1.09 million acre wheat crop to take off in Ontario.  Hopefully, we can get that off in an orderly fashion amid some rain showers.  The wheat harvest has already started today in Essex County Ontario.

With the June 30th report over, weather will be the dominant feature in the next eight weeks for our crop prices.  The May June rally in prices gave us some opportunity, but if history tells us anything, there will be another time.  We are still a long way from payday.  This thing is not over.  There will be many more chapters written before combines start to roll this fall.