Rain Would Help The Ground Shifting Under Our Feet

It has been another dry week here in southwestern Ontario as farmers started their wheat harvest. I had one farmer tell me once that he always enjoyed wheat harvest because it’s the only harvest that he could do in his shirtsleeves. I have always remembered that axiom through the years and hopefully I’ll be able to finish wheat harvest this coming week.  What I really need is a couple of inches of rain, which would stop wheat harvest cold. It is just a reminder that we can talk about the fundamentals of grain all we want, but we still need a cooperative Mother Nature to bring on those crops for fall.

We have certainly had a meltdown in the commodity market over the last two months from the frothy days post the Russian invasion of Ukraine. This past week we got the monthly update from the USDA with regard to just how much corn soybeans and wheat are out there.   We still need to look at the numbers even though market action over the last several months was about everything else.  Trying to make sense of that has been so difficult. Selling into it was easy.

On July the 12th the USDA increased corn production to 14.5 billion bushels but lowered US soybean production by 135 million bushels to 4.5 billion bushels.  The USDA kept their yield estimate at 177 bushels per acre which pegged corn production at 14.505 billion bushels. Old crop ending stocks for corn increased slightly to 1.51 billion bushels but domestic usage for corn remained at 12.17 billion bushels.  The USDA maintained Ukraine’s corn production at 25 million metric tonnes and exports of nine million metric tonnes just like they had estimated in June.  US Brazilian corn production is estimated to come in 116 million metric tonnes and Argentinian production was set to come in at 53 million metric tonnes.

If you look at those fundamental numbers, it’s telling us that we have a big crop in the field but nothing like we have had before compared to the demand that we have for corn. What is so different now is we have a gyrating political environment with inflation running wild. This has set-up an atmosphere where speculators are running toward the door with the corresponding boost in the value of the American dollar.  It is simply added momentum to a market which wants to go down at least for the moment or at least for the last few weeks.

The same could be said for soybeans.  With the USDA having already adjusted acreage to 88.3 million acres they kept the 51.5 bushels per acre yield from last month’s USDA report.  The new crop soybean ending stocks is pegged at 230 million bushels while the old crop stocks are pegged at 215 million bushels. That’s very low in historical terms and despite that we saw prices get whacked over the last week.  Globally, the USDA actually lowered new crop soybean stocks to 99.61 million metric tonnes which was attributed to higher stocks in Argentina versus lower stocks in EU S Brazil and China.

Fundamentally, that adds up the soybeans are still very bullish, and I suppose they are but when you’ve dropped a few dollars from their highs, it makes some farmers want to hide under a rock.  However, it was not very comfortable under the rock, so I always listen to my DTN colleague Senior Analyst Todd Hultman everyday on his closing market video.  Todd pointed out recently that the August soybean oil had fallen to its lowest point in the last six months. At the same time palm oil prices have fallen to their lowest price in nine months even though heating oil is in an uptrend and still supporting soybean oil.  You get the picture.  Despite the fundamentals of soybeans being pretty bullish there are cracks in the armor, and we all know that oil prices have been falling recently. It just goes to show that cracks are showing up big time in commodity demand and they were resultant price swoon over the last few weeks is the result.

Indeed, the market did what it did, and it seems to be ignoring a very dry forecast for the next few weeks. Or is just setting us up for some excitement. Frankly, I don’t know how much more I can take in July of 2022.

Thankfully, the Bank of Canada provided a bit more excitement for us last week. They raised their benchmark rate 100 basis points in their latest attempt to fight inflation which is taking the country by storm.  While this usually results in a rising Canadian loonie it’s resulted in the opposite with the Canadian dollar dropping to 75.62 cents in early trading last Thursday.  That’s a good thing for Ontario and Quebec domestic grain prices especially in a market where grain futures have dropped. However, it’s making carrying lots of farm debt so much more expensive and the Bank of Canada governor says that we should expect more rate increases soon.

All of this makes me think the ground is shifting under my feet again.  Yes, it surely is. However, I need that ground to turn into mud soon or much of Ontario is not going to have a good news story for 2022. We need Mother Nature to grant us some much-needed moisture.  Some years, that’s so much more important than the fundamentals of grain and the Bank of Canada’s strategy on inflation.  Hopefully 2022 is not one of those years, but something has to change soon.