I always hate to see July go. Living in Canada where you wear a coat for about 8 months of the year midsummer is always one of my favorite times of the year. It’s a time where we can harvest our wheat in our shirtsleeves and not feel that cold sting coming from a north wind.  This year the corn is tall, and the soybeans are showing signs of light amid the dead spots where water laid.  However, the jury is still out on how big or little this crop really is.  August rains are always important.

Aside from the wet weather this summer the markets have been cruel. For instance, since about mid-May we have seen a 95 cent drop in the price of December corn futures and about a $2.00 drop in the price of November soybean futures.  Multiply that across 2.1 million acres of corn and 3 million acres of soybeans in Ontario and you have huge revenue reductions.  There is no question that this will have a big effect on the greater agricultural economy not only here in eastern Canada but across the greater North American corn belt.

Cash prices for fall delivery have Ontario corn at approximately $5 a bushel this week and soybeans just over $13. While this might have caused celebration back a few years ago, these prices are much lower than many producers have become accustomed. Cash flow projections over the last few years have not included prices this low. Of course, as farmers we all know that this is part of the great game, but we never like it when it happens.

Last Wednesday we actually had December corn break through the $4.00 mark finishing at $3.99 a bushel.  The corn market likes round numbers and it’s always psychologically damaging when that happens. I read the comments from my colleague DTN Lead Analyst Todd Hultman, who said these corn prices are absurd from a fundamental viewpoint.  Todd also mentioned this was the lowest closing price since November 2020 even though our production costs had surged 29% since then.  He even mused that this is the equivalent price of approximately $3.10, if we compared back to 2020.

Todd’s comments are always interesting, but they do point out just how cheap corn has become.  The optics of cash values in Ontario of $5 and $13 for corn and soybeans has much to do with the Canadian dollar hovering near 72 cents US.  In almost every market commentary I write here in Ontario I often talk about how this serves as a stimulus to Ontario cash grain prices.  Put another way, you might call it a floor for Ontario cash prices as the conversion into Canadian dollars sometimes muffles the reality of how cheap grain prices have become.

How about if the Canadian dollar was at 82 cents US or at 92 cents US?  It would simply reduce basis levels here in Ontario and make for much cheaper cash prices.  If the Canadian dollar rose significantly above those levels, then we see negative basis levels and prices nobody wants to imagine in 2024.

Having said that, sometimes I think it’s still easy to turn the other way.  In fact, none of this has been secret ever.  This past week I have heard the lament of more than a few farmers who contacted me regarding grain prices.  The reality is big supply is winning again just like it did in 2023.  As of the end of July, record crops are in the offing especially if Mother Nature plays nice.

Hope and faith are good things, but really not part of a good marketing plan.  Needless to say, I told two farmers this past week that they needed both when it came to grain prices.  US export sales for corn is up 37% from a year ago.  Ethanol production set a new record last week and total production this year is 3.7% higher than in 2023.  Cheap corn tends to do that, building demand silently under the guise of lower prices.

At the present time, the managed funds or non-commercial traders continue to hold heavy net short positions in both corn and soybeans. This has had the effect of driving the price down even sharper.  You would think at a certain point that they have to cover their shorts but of course the hard part is knowing when that will happen.  Crop ratings are strong and the forecast ahead for the American Midwest is for cooler weather. That leads me to think we’re just going to continue quietly building demand.  My crop might not be as good as last year, but it seems like the world’s is.

As farmers, we are once again caught in that vicious cycle of efficiency.  The profits we get are reinvested back into our farm businesses to use new technology making us more productive. This will ultimately pressure our prices and revenues, hastening the cycle once more. In 2024 here we are.  The question is how long we will be here.  Let’s hope, Todd is right, these prices fundamentally are absurd.  Somehow, I think the grain gods aren’t listening.