Our Changing Grain Market Narrative

I had a young farmer tell me last month on the social network twitter, I’m wrong on all accounts. I asked him for an explanation, but really should have answered him with the reality I’m wrong most of the time, but I try to get it right. As August comes to an end, usually it’s on full display what I got wrong and what I got right. Weeds show up in my fields, I never expect. It happens because of the decisions and trade-offs I made planting my crops last spring. A good pre harvest burndown on some acres is usually in the offing. At the end of the day, we can correct the wrongs of a crop year and re load for next.

The young farmer thought I had it wrong about my choice of tractors, so I can live with that. Tractors are simply a cog in the great agricultural economic equation. Some like green, some like Massey Ferguson red, some like an even different shade of red and green. It is what it is. Getting it right is a highly subjective thing.

If it was only that way with our grain markets, it would be so much easier. However, we all know it doesn’t work that way. In Ontario and Quebec, farmers are flat price sellers of grain. With the volatility in the Canadian dollar combined with flexing futures markets, many find the challenge of getting both right too high of a hill to climb. It took me a few years to get around on that argument, but now I feel it is the right one. With the Canadian dollar rising to the 76 cent US range and grain prices rising over the last week, the round number of $12 for new crop soybeans emerged last week. With the griddle hot, I’m sure many of you had standing pricing orders for soybean hitting.

November soybean futures have risen 75 cents since August 12th and as we head into September, we’ll see how much more this rally has got. That’s a big move especially with big crops in the offing. I don’t need to remind you that the USDA predicted US corn to come in at 181.8 bushels per acre and soybeans at a whopping 53.3 bushels per acre in the August USDA report. With hot dry weather impacting Iowa and Nebraska and China buying copious supplies of soybeans compared to last year, the soybean market has responded.

This could represent a time for some of us to right our marketing wrongs. However, with Covid 19 still infiltrating our marketplace, maybe there wasn’t any good time to contract grain. Sure, last January might have worked, but who could ever envision a pandemic. Needless to say, this latest market really in soybeans does represent a profitable opportunity.

So, what happens now? There are lot of moving targets. I think something is amiss in China. Not only is China back on the trail of buying US soybeans, but also American corn. At the present time the internal price of corn in China is about $8.36 a bushel. If fact, it almost makes sense for China to buy US corn and resell it in China. At the same time, China is buying other agricultural commodities like pork and sorghum. Of course, many analysts don’t trust China’s official grain statistics. However, Brazil is tapped out of soybeans and the United States has captive soybean supply for China into 2021.

I look at this as simply a continuation of the Chinese economic ascension within the world order. Aside from the problems with Covid19 (which were/are extensive), China is still growing and still needs all of the agricultural commodities we’ve always talked about. In 2018 there was a major fracture with the United States, but two years down the road, that demand is coming back. If peace and tranquility continue (a big if in front of the Nov 3rd US election), China’s insatiable appetite for agricultural commodities should return.

All of this is happening at a time of widening drought in parts of the US corn belt. However, we’re almost in September, and damage will likely be limited. There was also the Derecho. It should result in USDA on September 11th reducing the crop size. However, the USDA at times can be fickle. The November July forward curve in soybeans is highly bullish and non-commercial traders are buying in. I might be wrong, but this is no tractor. 75 cents over the last two weeks doesn’t lie. The grain bull has to be fed every day and that’s a very difficult thing to do.

Looking far down the road, a production calamity in Brazil in this winter could sit this soybean market on its ear. However, in many ways that’s a reminder, that nobody knows the future especially when it comes to future prices. A surprise announcement or presidential tweet pre-November 3rd might be just as calamitous.

You can make an argument that December corn futures at 3.58 and November soybeans futures at $9.42 is nothing to write home about. As Canadians, we also look at that knowing American farmers had that $28 billion of government subsidy pumped into their accounts. It is what it is. However, this grain market is a little different than first telegraphed earlier this year. The challenge will be to incorporate some of this new reality into your marketing plans. Trying to get it right is always a very good thing.