It has been a mild winter so far here in southwestern Ontario. In many ways it’s been an extension from the rainy times we had in November and early December denying many of us from getting in the fields to harvest crops. Just this past week there was some soybeans harvested in my neighborhood. The temperature was about minus 10 to 15 at night which set up the field for heavy equipment. I’m glad it’s off because even though it wasn’t mine it was difficult watching $17.00 soybeans getting covered up with snow earlier.
January represents many things but usually it doesn’t represent good harvest weather. However, not only were soybeans being taken off last week but some of the remaining cornfields started to disappear. This was happening at the same time where the United States Department of Agriculture was releasing their final numbers on last year’s US crop in the field. There was also a plethora of numbers dumped on the market concerning all facets of US and worldwide production this past Tuesday. Usually, the January USDA report causes violent volatility, not so much this year.
On January 12th, the USDA increased corn ending stocks slightly by 47 million bushels to 1.54 billion bushels. It was a big crop in the field last year as the USDA confirmed 177 bushels per acre, which is a record just edging out 2017. This put total US corn production up to 15.115 billion bushels. Total corn usage was increased slightly from last month to 14.835 billion bushels. The stocks to use ratio for corn was at 10.4% compared to 8.3% at this time last year.
If you think hard for a moment and this was some other year and we had record production in the fields you would think that we’d have incredibly low prices, but we’ve had just the opposite. As you all know I do not pretend to know exactly why this happened and to be honest I will continue to wonder why unless the market completely tanks in the next few weeks. The best explanation I’ve ever heard is we came from a place where we had low supplies and demand has kept pace at incredible levels. Here we are, with Ontario and Quebec cash prices still well above $7.00 a bushel.
On the soybean side of the ledger there was still a big crop but not a record yield coming in at 51.4 bushels per acre. This was just slightly below the record yield of 52 bushels per acre. Total production came in at 4.435 billion bushels which was up slightly from the December estimate. The soybean stocks were increased slightly by 10 million bushels to 350 million bushels. There was much anticipation into the USDA’s estimate of Brazil and Argentina soybeans. Brazil soybean production was pegged at 139 million metric tonnes, a decrease of five million metric tonnes from their previous estimate as well as a 3 million metric ton drop an estimated Argentinian production, which now stands at 46.5 million metric tonnes.
All in all, it was a boring, USDA report, which didn’t result in much price volatility action. Those algorithms must have been disappointed. As it was, last Thursday, soybeans dropped 22 cents a bushel and corn dropped $0.11 as this market continues to try to find its balance. In Ontario and Quebec this past week cash grain markets were also affected by a Canadian dollar which gained almost two cents on the week against the US dollar. When we have a foreign exchange appreciation that happens as fast as that, it gets your price basis attention.
As a market mover, the USDA report disappointed. The trading algorithm were programmed to do great things, but the news didn’t set off any trading volatility. Of course, today the first thing I thought of is they got rain in southern Brazil and northeastern Argentina but of course I’m ensconced in Dresden Ontario it’s hard for me to tell. It just makes me wonder about that question I asked everybody last week, is it, was it, time to take risk off the table? Of course, the answer to that question is always blowing in the wind. It’s mid-July in many parts of the South America crop belt and the risks associated with that are the same that we have at that time of year.
What that means is in July we usually don’t really have a good barometer of how good our crop is, but we know it’s getting close to being made especially corn. In South America it’s a little bit more complicated because they plant their second crop of corn after they harvest soybeans. This takes daily market intelligence to figure out. It just might be that the market has become comfortable with what has been perceived as a short supply and at these price levels there is lots of room for erosion to occur.
As we move into late January, we need to keep abreast of South America weather as well as the changes in future spreads not only in the nearby months but all the way out to November. December and beyond. We’ve had a pretty good run the last 18 months. Remember, we farm in the world of agricultural economics where agricultural efficiency is a vicious cycle. I started farming in the early 1980s, so I admit, there always seems to be a cloud on the horizon. Clearly though, I don’t want to put that bias upon any of you. Times have changed and so has our grain market. For the moment, keep your eyes and ears on South American production. That’s what China is doing, and we might as well for the moment be doing the same thing. The next few weeks in South America may determine future grain price movement for the next year.