In the Combine Seat My Mind Turns to Markets


Harvest has finally started for me in southwestern Ontario. Excellent weather with bright sunny days has me planting wheat and harvesting at the same time. It’s a bit of a challenge especially as I grow older, but big equipment helps along with those excellent conditions. It’s been a long year for me; I’d love to have excellent weather until Christmas.

If we could only order such weather? The 2019 crop has had its share of challenges. Much of the crop in the field cannot take a frost. Last week in eastern Ontario, freezing temperatures put an end to the growing season. That’s just another reason good harvest weather is appreciated. Most of us need to be frost-free for a few more weeks.

Today, October 10th, USDA chimed in with their latest WASDE report adding to the harvest fun. In the report USDA pegged US corn production to come in at 13.8 billion bushels, which was somewhat higher than expected. USDA also pegged soybean production to come in at 3.55 billion bushels on a yield of 46.9 bushels per acre. US corn yield was pegged at 168.4 bushels per acre. Despite all the problems we had this past spring, it looks like US corn numbers have overcome the weather adversity.

Corn ending stocks were pegged at 1.93 billion bushels, which is still a lot, but less than the 2 billion mark. Corn still has problems with demand and this is showing up. Soybean ending stocks dropped to 460 million bushels, which was at the lower end of trade estimates. USDA lowered soybean yield down by 1 bushel per acre to 46.9 bushels per acre. The harvested acres were also decreased to 75.6 million acres.

The soybean stocks to use ratio dropped to 11% on this news, which is generally considered quite bullish for soybeans. Of course the elephant in the room is still the US China trade talks, which are now taking place. President Trump said today, those talks are going well. China on the other hand considers short term to be 100 years. This thing has been such forbidden fruit for the soybean market. Someday, I’d like it to be over.

Cash corn prices in Ontario are approximately $5 for corn and $11.50 for soybeans. Cash corn prices have dropped about 70 cents over the last several months, soybeans on the other hand have gained that much. A Canadian dollar at 75.22 cents US today has helped. In fact, it’s been the story helping Canadian farmers for several years now.

So what happens next? Well, I heard from a trusted advisor (my farmer neighbor) who told me soybeans have a dollar in them, but he didn’t know whether it would be up or down. That’s a good one. However, if Brazil remains dry or has any type of production hiccup, all bets are off. Needless to say, nobody knows.

In Ontario and Quebec, farmers are flat price sellers. For years I resisted this notion as I thought basis and futures opportunities were separate entities. However, more and more, Canadian dollar volatility has been so high, farmers have become more comfortable with $5 corn and $12 soybeans no matter what futures and basis are doing.

Someday that is likely to change again. For instance, 7 years ago the Canadian dollar was at a premium to the US dollar. Since then we’ve been on a constant march down to 75 cents, where we’ve been off and on for the last 3 years. At a certain point, we’re going to be headed back into the 80s and 90s. That will put pressure on cash grain prices and by default, the flat price selling mentality.

As the days go by, we’ll have to see what the Ontario and Quebec grain marketplace shapes up like this fall. Will the untimely freeze of last week cause widespread quality concerns in corn in Eastern Ontario. Will a freeze in the next week affect other areas not affected last week? Will this result in a sloppy corn basis this fall? Or will it just be a normal year, with too much corn on the ground in Ontario eroding corn basis further. So far, it’s still too early to tell.

Of course at this stage we don’t know the answers to most of those questions. Ditto for the grain futures markets, which generally take no prisoners. The key of course is daily market intelligence. That means checking prices daily, checking your DTN terminal often and maybe even taking a look on twitter from time to time.

I’m back in the combine tomorrow. I’m hoping for more sunshine and higher prices. Getting there can sure be an adventure.