Craters Everywhere, The Rocky Road for Grain Prices

It seems like I’ve been freezing to death all spring. Of course, that’s a bit of an exaggeration, as SW Ontario and Quebec had been suffering from a cold snap as has all of the greater Midwest corn belt. Earlier in May I woke up to what I thought was rain overnight only to view a 1-inch blanket of snow, something unheard of for May 10th in this part of the country. Needless to say, Toronto and Ottawa recorded their coldest May 10th ever.

I finished planting corn on May 6th as many agronomists across Ontario were advising farmers to pull the pin. Rain and cold temperatures were in the forecast and in these northern climates that’s never a good prescription. I’m still not a proponent of early soybean planting. I’m quite satisfied my soybeans aren’t in the ground yet. Nobody knows the future, that’s for sure, but the memory of planting soybeans last year on June 25th, burns in my memory. It’s still early.

With that as a backdrop, the USDA graced us with their May WASDE report May 12th. I know I was expecting apocalyptic corn numbers and that’s close to what the USDA gave us. For this upcoming season 2020/21 the USDA announced they are expecting a record production of 15.995 billion bushels of corn based on 97 million acres and a yield estimate of 178.5 bushels per acre. Gulp! Man, those are big numbers, which I think pretty well everybody expected. It would seem supply is never our problem when it comes to corn. We’ve built a corn economy which is based on corn genetics increasingly bulletproof in the production arena. The unfortunate timing with the Covid demand destruction makes these numbers so much bigger than we’ve been accustomed to.

Ethanol demand remains high from my standpoint coming in at 5.2 billion bushels. This is down about 178 million bushels from a year ago, but I think we all know what I’m talking about. I’ve even heard some analysts talk about a halving of US ethanol demand based on the cratered gas demand. As we move ahead, the craters along the road might become bigger for when and if the USDA gives a more complete picture of ethanol demand. How much of this ethanol demand is gone and for how long?

I’m actually growing more corn than last year. It’s mainly a rotational concern after 2019 where I didn’t have any wheat and far too many soybeans after being unable to plant all my corn acres. However, looking at the corn fundamentals, I was surely thinking twice last week. However, keep in mind, despite the gloom, nobody knows the future. It’s always darkest on price before the dawn. As is, I’d expect Ontario to have approximately 2.1 million acres of corn this year. However, Statistics Canada says 2.3 million acres of corn for Ontario and 972,100 acres in Quebec, which is up from last year.

Soybeans don’t have the bearish fundamentals, relatively speaking compared to corn. USDA on May 12th estimated a 2020/21 soybean crop of 4.125 billion bushels based on soybean acreage of 83.5 million acres with a yield of 49.8 bushels per acre. New crop ending stocks came in at 405 million bushels which was below trade expectations. However, USDA pegged old crop soybean stocks at 580 million bushels, up 100 million bushels from last month. USDA pegged Brazilian soybean production at 124 MMT, which was down slightly from last month but still a record Argentina soybean production was pegged at 51 MMT. As I write this Dec corn is $3.31/bu, November soybeans are $8.43/bu, nothing to write home about.

Out of nowhere this in Mid May, the soybean complex caught a sucker punch, I didn’t expect. President Trump suggested that he may cancel the China US Phase 1 agreement over China’s role in the Covid19 debacle. This signal from the President was enough to pull the floor out of the market on the news. There is nothing bullish about that, it has the potential to put us back a couple of years, aside from the Covid19 problems we have now.

The USDA pegged total US wheat production to be down in 2020 from 2019. New crop global wheat stocks were set to increase, substantiating the fact that wheat is grown everywhere and seemingly is never in supply constraint. My wheat looks good, but has been pounded by snow and heavy frost, which my agronomist friends tell me that’s not good. However, to me, it looks fine, despite what the inner agricultural economist within me which says, “I need to get paid more for my wheat”. That’s a long story in 2020.

Looking ahead, you all know the drill. We need demand back and putting Covid to bed will help that. However, the pandemic continues. We have faced low prices before and for the most part come out the other side. Things have a way of working out, even during a pandemic. As rocky as things have been, eventually we’ll find normalcy, even in grain prices. This uneven path is a new one, but eventually it will lead back to a better place.