Expect Violent 2021 Grain Price Volatility

We were limit up today in corn, but limit down last Tuesday. What happens tomorrow? Of course, I like to keep that secret, but if you know, drop me a note. Hot and dry is coming as we’ll greet June next week. We’ve got those speculative limits increased at the CME and as was discussed here earlier, that will mean increased volatility. That’s exactly what we have as price discovery goes through its gyrations. There is just so much risk on the table. With the North American crop still a theory, fasten your seat belts for more.

In Ontario and Quebec, new crop corn and soybean prices range from $6.40 per bushel and $16.22 a bushel respectively. These prices are incredible versus where we found ourselves last year, a long story that is still evolving as we head into June 2021. Brazil put together a record soybean crop and sold into the rally. As of now, in North America we have the opportunity to price another one into the market rally. Of course, nobody knows how this crop will fair amid all the possible production calamities we might face this year.

Needless to say, rain this past week helped send the market down as the dryness retreated back into the US northern plains as well as Ontario and Quebec. I had about 2/10ths of an inch of rain this past week on parched fields and I want more. We love drought at planting time to get the crop in, but invariably that grows old once the crop is in the ground. I finished soybean planting last week.

Rain is predicted for tonight, so I’m hoping. This is my 40th spring planting my own crop so you can see I’ve seen almost everything mother nature could divvy out. Last year, emerging crops were hammered by rains forcing many replants. This year in southwestern Ontario, most crops came up very quickly as sunny hot weather accelerated growth. That’s good for me, but looking further out, I’m really wondering how this North American crop will develop both in the field and in USDA circles.

You might remember last March 31st when the USDA gave us their estimates for corn and soybean acres this year. USDA pegged US corn acres at 91.1 million and soybean acres at 87.6 million acres. Corn production is set to come in at 14.990 billion bushels, soybean production expected to come in at 4.405 billion bushels. When these figures were announced, markets surged, as we were in the middle of a bull run and traders knew, that wasn’t enough supply to keep the pipeline full. I remember, my first impression on seeing the soybeans number was that it wasn’t enough. With our crops in the ground and the market changing, how many more acres do you think the USDA will pull out of their hat on June 30th?

I think it will be a lot higher. However, we’ve learned especially over the last 2 years how far off the USDA can be from actually be right. Keep in mind last year, the USDA cut corn acreage by 5 million acres between the March 30th and June 30th report. It was pretty unprecedented at the time and did give a boost to prices. In March 2020, USDA predicted 97 million acres of US corn, but then came down to 92 million heading into summer. On June 30th, 2021, we’ll get their new numbers and you’ve got to wonder if they’ll be as radically aggressive for more acres this year versus their less acres last year. As it is, most analysts are lining up for higher USDA corn and soybean acres, a lot higher.

What’s that mean? It could mean a lot of things other than more supply to cure these higher prices. However, what it likely means more than anything is an even more violent volatility than we’ve seen this past week. We might be getting to a tipping point on prices, but we’re also getting to a tipping point on price expectations. You’d think by July 4th, we might know.

In Ontario and Quebec, it’s more of the same, no big swings in acreage here. I’ve often said wither our cold Canadian climate, we’re kind of tapped out with land and climate for more production. Statistics Canada this year is saying 2.2 million acres of corn in Ontario and 2.9 million acres of soybeans. In Quebec, we’re looking at 901,300 acres of corn and 923,000 acres of soybeans. There numbers aren’t unusual, in fact, depending on wheat acres, I’m sure you could massage these numbers for years to come. As it is, any production calamity in either Ontario or Quebec corn country can create unique basis opportunities for each other. Yes, what the crop does here can have a very real effect on pricing.

Of course, a large part of that equation has to do with the Canadian dollar, which has been on the rise lately. Currently, just under 83 cents, the loonie was at 69 cents and change in March of 2020 and has risen from the 79-cent level over the last few weeks. This has largely been in response to a declining American dollar. Needless to say, it has tempered the Ontario and Quebec cash grain basis and it will continue to depend on what futures prices do. Interestingly enough, high futures prices sometimes make us numb to that pain.

It is what it is. I’m hoping for rain tonight to keep my crop headed in the right direction. Needless to say, even if the rain comes prices will remain in a state of violent 2021 volatility. Limit down followed by limit up and vice versa might surely greet us some more in June and July 2021. We got here with our eyes wide open. It’s no time to close them now.