The weather has turned cold earlier in February giving me temperatures last seen November 14th as my combine was stopped by snow. This winter has been mild in southwestern Ontario and even tonight’s cold temperatures are supposed to be short lived. We’ve had mild winters before, followed by normal summers. With the dread year 2019 behind us, we can only hope for better days ahead.
Of course, we hope for the same for grain prices. It’s a never-ending hope in farm country that prices head higher, but the reality is usually so much different. With March corn currently sitting at $3.80 and March soybeans chiming in at $8.96, it tells a real story. Despite some difficult times last year, the world seems still awash in grain. The USDA chimed in last week with a renewal of numbers driving things home. It looks like we won’t be running out of grain anytime soon.
On Feb 11th, the USDA boosted soybean exports by 50 million but lowered corn exports by the same. Soybean ending stocks were reduced to 425 million bushels. Corn ending stocks were pegged at 1.892 billion bushels. USDA kept production numbers the same from the January report, corn at 13.69 billion bushels and soybeans at 3.558 billion bushels. Brazil’s soybean crop was increased to 125 MMT and Argentina pegged at 53 MMT.
The story from the USDA surely tells one of big crops, but we all know, there were issues in the field last year and basis has told much of that story. I define basis as the value of which determines when grain is moved. (bought or sold) Throughout the United States and Canada, basis variability is telling the story of where the 2019 crop was good and where it wasn’t.
It is surely showing up in Eastern Canada. In Ontario and Quebec, the corn basis is strong vs historical values. This is true because American basis values are higher closer to the border, but also because of crop quality and yield in parts of Ontario and Quebec. It’s a complete reversal in the cash corn market from last year, where quite a bit of Ontario and Quebec corn was being exported to the EU to places like Ireland. There is none of that this year.
Keep in mind, farm country from Windsor Ontario to Quebec City takes up quite a geographical area, which could see a lot of environmental differences on a growing crop. It’s a big area for weather to exact quality differences. In 2019 as you moved east toward Quebec City, there were greater problems. Late planting, an uneven growing season, followed by poor harvest conditions caused all kind of havoc in Quebec farm country. Much of the corn is light in test weight and high in CCFM, (cracked corn and foreign material), which has caused havoc in the Eastern Ontario and Quebec cash corn market. Large discounts are apparent, which never goes down well with corn farmers.
As cash markets go, the Eastern Ontario and Quebec market is interesting from my perspective. Typically, price transparency is an issue and flat pricing is the preferred method of pricing. There is a dynamic livestock market as well as ethanol and not the production fields of the deep southwest of Ontario. Export opportunities in some years are excellent and this often leads to Quebec and eastern Ontario having the best cash corn basis in Canada.
Then came along the 2019 growing season and the very difficult fall in Quebec. Quality problems became apparent, but demand and price for good corn was high. However, there is a limit to prices when good quality Quebec corn is in short supply. Cheaper corn was trained in from Illinois and Iowa into the Quebec City feed market. Some of this was bought early on, as end users could see problems ahead.
Of course, many farmers in Eastern Ontario ship into Quebec and they need to keep abreast of the market situation as well. Western feed wheat shipped east displacing corn further complicated the situation. Meanwhile back in southwestern Ontario, our prices were too high to ship into Quebec. That’s why corn from Iowa and Illinois pass by train on the way to Quebec.
It’s a long story, but sometimes explaining cash grain prices in Canada is. There are similar basis anomalies in the US. I mean, I’ve heard more than one analyst say that the 2019 old crop basis is doing the price discovery job. It’s got me thinking over the past week, is the grain futures market doing its job? My answer is this. The grain futures market cannot differentiate on the different grades of corn and in 2019 in some parts of the country it’s a potpourri of grades and discounts.
It makes our cash pricing a challenge especially in Canada. I haven’t even mentioned the Canadian dollar. However, as I’ve said thousands of times, risk management never grows old. Having a marketing plan with standing orders ready at profitable prices helps. Flexibility in that plan helps too, just look back at 2019. Needless to say, let’s look ahead, pricing 2020 crop is in the cross hairs now.