The July USDA Report and the Elephant in the Room

 


It has dawned hot and dry in southwestern Ontario as very late crops finally get on the road to maturity. Timely rains will surely be needed this summer to get these crops to the finish line. Remnants of the toughest spring on record are all around me, as many fields didn’t get planted. There are similar stories south of us. In fact, within market circles, it’s the elephant in the room. USDA released their July report today and many farmers were waiting for a numbers massage. However, what they got was more of the same. The old numbers seem to work for now.

I didn’t really know what to expect, but lower acreage and a lower yield seemed to be in the offing. However, the USDA chimed in with the 91.7 million acres of corn from their June survey. US yield remained at 166 bushel per acres. The soybean acres remained at 80 million with yield being cut a bushel/acre to 48.5. US Corn production is set to come in now at 13.875 billion bushels. US soybean production is set to come in at 3.845 billion bushels. All things equal these numbers were bearish. However, the market didn’t believe it. Prices raced higher on the day. The elephant in the room is planted acres and yield. This crop is compromised.

The USDA finds itself between a rock and a hard place. They have a set schedule of reports, which usually works good for everybody to trade their numbers. However, this year with heavy rains inundating the Eastern Corn belt, the June survey turned into a bit of a fiasco, as crops weren’t planted. It’s been a scramble for traders to imagine what the real numbers might be. The USDA has promised an update in the August 12th USDA report. In the meantime, the market is trading the elephant in the room.

It’s a tough place to be. Of course, nobody knows the road ahead. If we face hot and dry across the US corn belt going into September, we’ll have a price explosion. If we get normal rain and weather, markets could consolidate around current price levels. It’s a bit of a twilight zone for good information on total planted acres. Ditto for yield as we move deeper into summer.

My crops right now look pretty good. The only problem is its July 11th. They should have looked this way, maybe on June 11th. I’m hoping for great weather going into a very warm and open fall. Surely many American farmers in the Eastern corn belt will be hoping for the same thing. It should keep the risk premium going right into the fall.

At least we know that risk premium is real money, namely US Dollars converted into Canadian. I say that because increasingly I’ve been listening to commentary about crypto currencies, the most famous being bitcoin. Maybe this is my diversion to avoid looking to closely at my crops. Needless to say, the crypto buzz is getting a little louder. Recently Facebook announced their own plans for their crypto currency called Libra. Along with the spectre of negative interest rates, these new economic realities have got me thinking. Needless to say, I still want to sell my corn for real money.

In lieu of that, Facebook is a pretty huge company that seems intent on getting its way. Last week US Federal Reserve chairman weighed in saying “Libra raises serious concerns regarding privacy, money laundering, consumer protection and financial security. He also said he didn’t think the Libra project could go forward. Countries like India said Libra shouldn’t be permitted in the country.

It’s all interesting stuff for me. Early in my career, capital was a lot harder to access than it is now. Living in a country with hard currency can make us blind to a world that don’t. In those countries in Asia, Africa and elsewhere, alternative crypto-currencies can mean commerce in lieu of no foreign exchange with hard currency.

Needless to say, I don’t think for the immediate future we’ll be selling our corn and soybeans for Libra or Bitcoin. However, I can see it in the future as a means of exchange in some foreign transactions. However, it’s a real stretch to think of the USDA projecting cash prices into something other than US Dollars.

As we look ahead, there surely will be lots more news on Bitcoin and Libra. However, there surely will also be quite an adjustment in USDA numbers come August 12th. Standing marketing orders for grain will surely be part of that scenario. Nobody knows the future, but we do know the spring we just planted into. For the moment, the market will likely set that course. The USDA is surely going back to the drawing board.