Grain Demand Won’t Easily Be Tempered When the Supply Hiccup Emerges

Unknown     January is finally given us a little bit of an Arctic kick.  Cold weather has settled in making me almost nostalgic about the warmer weather of the cold summer last year.  Canadians only go without a coat about six weeks a year and the rest of the time we dream about it.  At least in January we can consider how much grain we have in our bins.

Over the course of this winter I will be giving three grains presentations in Elmwood Ontario, Charlottetown Prince Edward Island and Ste Hyacinthe Québec.  When I give a grains presentation I always want to project what I think “the story” is.  Of course looking ahead the story will be the number of planted acres that US farmers will be planting in 2015.  That is an aside from the story of the Canadian loonie, which has made cash grain prices extremely buoyant compared to our American friends over the last few months.

In 2014 our American friends planted 91.64 million acres of corn now estimated at 173.4 bushels per acre giving us a crop of 14.407 billion bushels.  This was the smallest corn acreage since 2010 but still the fifth largest since 1944.  On the soybean side of the ledger the US planted 84.4 million acres of soybeans and new record.  This planted acreage figure was a new record by a whopping 7 million acres.  Of course it all begs the question what is going to be planted in 2015 and how this impacts the price going into the fall.

I am considering this in front of the very important January 12th USDA report.  The USDA always sets the goalposts with regard to how much grain is in American bins.  Arguing against them is a bit like arguing against the Canada Revenue Agency.  You might have a great point, but at the end of the day you’ve got to pay the man.  The USDA on Monday will give us the final production numbers on 2014.  My hunch is that corn yield and stocks likely drop a bit.  I’m not so sure about soybeans, although those 47.5 bushels per acre yield always seemed too high to me.

Surely markets will react to Monday’s report.  Live trading means it’s unlikely that we will see a limit move and maybe after about 20 minutes the market will be focusing on what the new crop market is going to be like.  That will surely focus as the weeks go by on how many acres of corn and soybeans will be planted in the United States.

The conventional wisdom I’ve been hearing all year is that there will be soybeans wall-to-wall in 2015.  I think that even I ascribed to that.  Needless to say, on my own farm I am growing more corn and soybeans next year because I don’t have any wheat.  However, if you look at the number of soybean acres that have been planted in the United States over the last 11 years, 2014 acres was a real anomaly.  When you plant 7 million more than the previous record, what do you do for an encore?  Plant even more soybeans?

I’m having a hard time with that now.  It is true last week corn lost a little bit of ground on price and lots of analysts are looking to soybeans to lose too.  Our South American friends have a great crop coming and we all know that a 410 Million bushels US ending stocks doesn’t lie.  And for whatever reason my hunch now is we won’t lose as many corn acres as I thought we would have previously.  Of course spring weather will tell much of that.

In Ontario the wildcard is less wheat acres that were planted in the fall of 2014.  In my estimation we have about 400,000 to 500,000 acres that will be switched into soybeans and corn, originally intended for wheat.  My initial thought was that soybeans would catch most of these but with the Canadian dollar going down into the 84-cent level good spring weather might bring more corn acres than I previously thought.  This may even put Ontario back into an export position in corn in late 2015 and certainly in the winter of 2016.  If the loonie continues to retreat, I think it is friendly for Ontario corn planting.

Of course we are all hoping for better prices.  There are a myriad of price prognosticators who are saying that the supply of both corn and soybeans is so onerous, there is no hope.  It’s easy to say that now, but demand is at record levels and it will not be easily tempered when a supply hiccup comes.  And of course it will come.  Mother nature doesn’t always play nice and if there is a production shortfall demand will still be stampeding until it stops.  That’s when it gets messy and those marketing opportunities arise.  Pouncing on them in 2015 will surely be job one.