The old crop price of corn is approximately $4.40 a bushel near where I live. Soybeans are $13 a bushel. New crop corn is approximately $4.75 a bushel, while new crop soybeans are approximately $12.75 a bushel. If you are an American reader, you might take a double take. These are cash prices near Dresden Ontario. If you are in the United States your nominal cash prices have the optics of being much lower. Negative basis values are the norm.
It is a bit of a mirage, but what I have found is that we almost all fall for it in the world of agriculture. For instance, the Brazilian Real has actually gained substantially against the American dollar in the last few months, which has made Brazilian cash soybean prices less than a year ago. This is despite the much higher soybean futures price than last year. It has had the effect on Brazilian farmers to not sell as much as previous years affecting the futures market in Chicago. It is the magic of foreign exchange. Ditto for Southwestern Ontario. At the end of the day, it is what it is.
With that as a backdrop, the USDA actually released their latest WASDE numbers on February 9th. The USDA lowered corn ending stocks 35 million bushels down to 2.32 billion bushels. The USDA Soybean stocks at the status quo of 420 million bushels and reduced US ending wheat stocks to 1.139 billion bushels.
Simply put, there is still a lot of corn on the market. Those piles scattered across the Midwest of the United States don’t lie. For instance, the stocks to use ratio for this year’s crop is at 16.1%, which is much higher than the 12.7% recorded last year. A saving grace from the report was the USDA’s estimate of South American soybean production. While many had expected Brazil soybean production to increase to possibly 108 MMT, the USDA settled for 104 MMT and Argentina at 55.5 MMT. That was a bit of a surprise. However, with this much grain on the ground a million bushels here or there gets lost in the shuffle.
The question is when should Ontario and Québec farmers pull the trigger on some of these crop sales. We always have the challenge of marketing at good futures prices with an advantageous Canadian dollar basis. We’ve had that in soybeans particularly this winter with a $10 plus futures price combined with a $.75 dollar. With the direct conversion for basis from the soybean futures price, this has been advantageous. However, that being said if futures prices really decided to take off, cash prices would likely be much higher. As we look into the new crop year that will be a continuing challenge to know when to pull the trigger.
I asked that question of one of the leading analysts in the United States a couple weeks ago on the Iowa Public television show “Market To Market”. They produce an excellent show and take questions from their twitter followers. In a nutshell, one of the analysts said that they are advising clients to do their new crop selling starting in the month of March into the end of June. With soybeans currently at elevated futures levels compared to a year ago, some of us might have trouble with that. However, when you think of corn and soybeans combined, historically it might make some sense.
Needless to say, he was not Canadian and he did not need to consider how Canadian dollar volatility could affect our cash price bottom line. A nuance on his strategy would be to hedge the futures prices for possibly both corn and soybeans and do your basis at a different time. However, that will not necessarily work, it depends on the stars lining up between foreign exchange and futures prices. So what we need to do as Canadians is get comfortable with the strategy that recognizes that.
That is a bit akin to riding a bucking bronco with sore hoofs. Add all the risk ahead in our crop marketing year and you can square that. However, it can represent marketing opportunity, which others south of us don’t have. Key is to realize how much of a pricing “mirage” is materializing before your eyes. I say that because someday our futures prices will explode upward and cash prices will make these we have now seem so poor. It will still be a mirage, but likely a much better one.