It is wet on my farm. If you farm like I do, you will have all kinds of tasks to perform in order to get ready for spring planting. It is always easier when we have sunny, warm and dry conditions in early April to get some of these things done. However, that has not been this year in southwestern Ontario as both rain and snow has returned making for a reluctant spring. Of course, as all farmers know spring will eventually get here, sometimes going straight into summer.
Of course, all of that has to do with the recent weather in my neighborhood. What will be almost equally important in the spring will be the weather affecting our crops. As farmers, of course we know that. The other facet that we’ll have to deal with in regard to our markets is how the USDA set the table last week. March 31st is always a seminal moment for market watchers and last Friday was no different than the last several years.
On March 31st the USDA increased the number of soybean acres it expects American farmers to plant to 89.5 million acres. This was a 7% increase on acres from a year ago. At the same time the USDA pegged US corn acreage at 90 million acres, about 4 million acres less than last year. The corn number was interesting, but the soybean number more telling. With $10 futures prices pretty well the normal winter, it looks like American farmers took advantage of that planting incentive. Things could still change as we going to June 30th and then a few times again before USDA comes out with her final crop numbers in January 2018.
At the end of the day, the March 31st USDA report added to the bearishness in the market. It’s pretty obvious we have very big supplies, especially with Brazil pumping out what looks to be over 110 MMT of soybeans now. Their corn crop last year was also much better than the year before. Projecting a big soybean number of 89.5 Million acres in this market environment was simply piling on.
The quarterly stocks for corn were pegged at 8.62 billion bushels, which was up 10% from a year ago. This is reflective of the big crop last year something that can be forgot about in this current market environment. Usage from December 2016 to February 2017 actually increased to 3.77 billion bushels, up from 3.41 billion bushels last year. Soybean stocks were pegged at 1.73 billion bushels, which were up 13% from last year. The December to February usage was 1.16 billion bushels, which represented a 2% decrease from your go. All the wheat stocks were projected at 1.66 billion bushels, which was up 21% from a year ago.
It is increasingly difficult to put lipstick on this pig. In other words, it is increasingly difficult to project a market environment where there is any optimism for prices to go up. It all boils back down to me getting ready to plant amid all the wet weather around me. The bottom line in 2017 is that there will be a weather event, but of course nobody knows how widespread and when it might happen.
It is likely to be a summer rally. I say that because usually we get one, but sometimes it doesn’t last all that long. Also two, mind-numbing drought on a wide scale does not often happen in the American Corn Belt. I happened to tour through the US Corn Belt in 2012, when I saw all kinds of drought stricken corn. That is rare and we can’t count on that happening to the other guy. Hopefully though, we can depend on demand for our agricultural commodities to continue unabated.
Demand for corn is currently sitting at 14.62 billion bushels, huge by any measure. Demand for soybeans is currently sitting at 4.093 billion bushels, another huge figure. Having said that, the corn quarterly stocks were still very large and the soybean demand is actually down from a year ago. Somewhere, we need a production-changing drought, but please not here.
It is likely Québec and Ontario production acres do not change for 2017. There were new crop pricing opportunities in the winter, which gave very profitable signals. We can credit our Canadian dollar for that. The Canadian dollar has actually shown a little weakness lately, a welcome reprieve as soybean futures prices have declined precipitously over the last month.
The road ahead for agricultural markets will surely be shaped by 2017 weather and possibly some brewing geopolitical events. Our American friends continue to rattle their sabers. North Korea and Syria remained sore points. Needless to say, the USDA will be weighing back in with actual planted acreage June 30th. They always reset the goalposts. For those of us in this farming business, it’s a continual process of hedging our bets and our grain. Despite the market gloom, there will likely be many marketing opportunities ahead.