Like the Coureur Des Bois, Farmers Gauge the Market’s Next Turn

Here we are again in April. It’s a time of anticipation in Ontario and Quebec farm country as planters are being pulled out of sheds across Eastern Canada. Your loyal scribe does the same thing, and after I blow the dust off, I always try and harken back to the problems I may have had with it the year before. Hopefully, I have notes and of course in 2019, hopefully I have pictures from last year.

One thing that isn’t any different from the first week in April is news from the USDA regarding Prospective Plantings, always a sort of a litmus test for market analysts for the new crop year. With markets being swayed by politician’s egos over the last year, a good dose of the fundamentals should be good for the market’s soul. However, I think we’ve learned many times in the past markets don’t have souls and they are pretty short on scruples too.

On March 29th the USDA chimed in, putting US corn acres at 92.8 million acres, which was 1.7 million more than the average trade estimate. US soybean acreage was pegged at 84.6 million acres, which was 1.6 million acres below the average trade expectation and a whopping 4.6 million acres below last year’s record of 89.2 million acres. All wheat acres came in at 45.8 million, which was down 2 million acres from last year. Corn quarterly stocks came in at 8.604 billion bushels, which was far above the trade estimate of 8.336 billion bushels. That was a hugely bearish number for corn. Soybean quarterly stocks came in about as expected at 2.716 billion bushels, which is record large and ensures a very bearish soybean market outlook.

It was a bit of a gut punch to the soul of the corn market, with old corn seemingly coming out of the woodwork. Where did that extra 270 million bushels of corn stocks come from? The nearby corn futures price was down 17 cents on the trading day. That’s an earthquake in corn compared to its trading range. We know there have been problems with corn exports, but also too there are issues with ethanol demand.

This is the problem with US ethanol demand. The Trump administration EPA is eroding the RFS (Renewable Fuel Standards) for corn. They have done this since last October by granting SRE or small refining exemptions, which has the effect of handicapping or cutting the RFS dramatically. The SREs have been granted at a rate of 4 times what we had 3 years ago. This is destroying RIN values, ethanol prices and profit margins. This means the US is not motivated as they once were to make ethanol from corn. This is a shame because ethanol has been a star of the corn supply and demand balance sheet. Each week, the US has fallen short of hitting USDA ethanol demand expectations. Simply put, the RFS is broken and needs to be fixed.

That’s incredibly tough for corn farmers, with ethanol in such a politically made rut. As Canadians, we’ve always depended on our American friends to keep that RFS going. However, the new administration’s EPA has done the opposite. It’s meant cheaper corn, which unfortunately, may become even more common when we use the word ethanol. That is a game changer.

The USDA didn’t give us much of a surprise in soybeans other than to let us know, we’ve still got mountains of soybeans in the US. Disappearance of soybeans has been so poor, that the quarterly stocks number could result in an ending stocks figure way over 1 billion bushels by the end of this crop year. It’s like crazy bearish, but then of course there is that China US on going trade deal, which is like a carrot on the end of a stick.

In Ontario and Quebec, a Canadian dollar in the 74 US cent range is keeping the home fires burning. It means Quebec and Eastern Ontario farmers can still get that $200/tonne new crop for corn, which is like pixy dust on some marketing plans. Seasonality should also kick in on the way to July 1st, giving us a few more marketing opportunities.

President Trump chimed in last week saying he might close the southern border. Mexico is only the largest US export market for corn! Oh my goodness. Markets work well when politicians allow them. 2018 was a laboratory for that. We don’t need more of that in 2019.

As we look ahead there are myriad of things to get done. Checking the air pressure on the planter tires is surely one of them. However, refining that marketing plan doesn’t need to be lost in all the preparation. The USDA rearranged the grain market goalposts again last week. In many ways as farmers, we’re like the Coureur des Bois, those French Canadian traders who canoed into the interior to trade goods a few centuries ago. Many times, they didn’t know, what was around the next rock point jutting out into the river. Ditto for Quebec and Ontario farmers in 2019. However, I get it, you hope around the next river bend, you hope to see China.