Soybeans are also big business in Canada. From the research labs across Canada to the ports and processing plants where they are shipped and utilized, there is an active value chain spurring economic activity. Soybeans are good for our economy and good for Canadian farmers.

Soybeans once were limited to the deep southwest of Ontario. However, starting in the late 1970s and 1980s better short-season genetics transformed the crop to a point where now soybeans are showing up in varying acreages across Canada. In 2019, they’re a staple in the crop mix of P.E.I., Quebec, Ontario and Manitoba.

According to Statistics Canada, farmers reported planting 5.7 million acres of soybeans in 2019, which is down 9.6 per cent from 2018. In Ontario this year, farmers reported planting a record 3.1 million acres of soybeans. This was attributed to a very late spring, where many soybeans were planted instead of corn. Manitoba was the main reason for the decreasing Canadian soybean acres. In 2019 the soybean crop in Manitoba was down 22.2 per cent to 1.5 million acres vs. 2018. Quebec reported soybean acres down slightly to 906,200. Saskatchewan chimed in with 150,000 acres and P.E.I. came in at 46,400 acres of soybeans.

The 2019 growing season was extremely difficult in Ontario. Many soybeans were planted late into June and early July as wet weather delayed planting. This is one reason why we have a record acreage in 2019. At the same time the weather was quite good for planting in Western Canada, but dry conditions in Manitoba did affect the 2019 crop. Interestingly, fickle weather conditions and reduced yields over the last two years have hurt soybeans in Manitoba and Saskatchewan. Problems with lower protein content in Western Canada and better opportunities with canola have also weighed in.

Clearly, though, Canadian farmers do like planting soybeans. However, the challenge for farmers is to profitably grow and market these soybeans in a constantly changing market place.

Soybeans are traded in a global market. The two biggest production areas in the world are in the United States and in Brazil and Argentina, with generally opposite production seasons.

Soybean futures are traded at the CME in Chicago, where price discovery is made based on a futures market. Cash prices within North America are based on a nearby futures value plus or minus a basis value, which reflects local demand.

At the start of the Ontario harvest, soybeans prices were approximately $11 per bushel for both new and old crop soybeans. This was based on a November futures prices of $8.95 close on September 12 with a $2.05 basis value above the futures price. This price was actually higher than a year ago, but much lower than soybean prices in May 2018 when the nearby futures price hit $10.42 per bushel, approximately $1.50 higher than at September 12, 2018.

This is largely due to the exit of China from the American market, and to last year’s largest soybean crop ever grown in the United States. The exit of Chinese demand combined with a huge crop continues to put a damper on prices over a year after Chinese tariffs were applied to American soybeans.

Over the last 15 months, soybean prices have been trading without China being in the market for American soybeans. It has been difficult. On the other side of the coin, the trade war between the United States and China has been a gift to the Brazilian soybean industry. This led to premiums for Brazilian soybeans going to China and a further expansion of the industry in Brazil. Argen­tina has also benefited from Chinese interest with a further expansion of their soybean meal market into China. Simply put, without China returning to the American market for soybeans, prices to Canadian farmers and the U.S. will always be compromised. China’s voracious appetite for soybeans needs to return.

North American soybean farmers have responded to this new soybean price reality by reducing acreage. In 2019 American soybean farmers planted 76.7 million acres versus 89.2 million acres of soybeans in 2018. This was a huge reduction partly attributed to the new reality of lower soybean prices. Soybean ending stocks had ballooned to 1.005 billion bushels at the end of the 2018-19 crop year.

These new soybean price fundamentals in 2019 are changing rapidly. However, bearishness in the complex remains. On September 12, the USDA released their latest crop production report. U.S. national soybean production is set to come in at 3.633 million acres based on a yield of 47.9 bushels per acre.

It’s still a big soybean crop, but to put it into perspective, the lower 2019 acres and yield means an automatic decrease in supply by 911 million bushels. Projected ending stocks have decreased from 1.005 billion bushels last year down to 640 million bushels in 2019-20. These are still big numbers weighing on prices, but much less than a year ago.

How might this change? There are a few paths toward higher soybean prices. For the last 15 months, the soybean complex has been adjusting to the exit of the Chinese from the North American soybean market. A new wrinkle in this came in the summer of 2019 with the Chinese exiting the Canadian soybean market as well, partly in retaliation for the arrest of a Huawei executive. This led to widespread retaliation from the Chinese on Canadian canola, pork and soybeans.

At the end of the day, trade peace between the U.S. and China in the form of a trade deal would likely send soybean futures higher. Some type of resolution between China, Canada and the U.S. on the Huawei situation would help too. Simply put, the soybean market has been savaged by this trade dispute. Putting it behind us would provide an avenue for soybean futures prices to rise.

It’s hard to say when any real resolution might come. The Chinese are also dealing with widespread African swine fever, which is causing pork prices to rise greatly. Less pork to feed is a negative for soybean demand.

Planting delays or associated problems in Brazil would also push soybean prices to rise. Chinese action within the global soybean market has worked partly because it was able to satisfy its need for beans from South America. Brazil is projected to produce a record crop of 123 million mt of soybeans this year, with Argentina set to produce 53 million mt. If all goes well there, soybean prices may continue on their current bearish path. However, if there is a production problem in South America, depending on its depth, it could send shockwaves through the soybean market. With Brazil soybean planting ramping up in October, farmers will need to watch for any potential problems along the way.

The Canadian dollar will continue to affect Canadian cash soybean prices. With the Canadian dollar hovering around the 75-76 cents U.S. level, the associated positive basis values put Canadian prices in the $10-$11 cash range. Canadian farmers tend to be flat price cash sellers.

Volatility of the Canadian dollar has a big effect on soybean basis values. Standing marketing orders at flat prices may help limit the risk associated with soybean futures and basis values.

Despite the many issues, the soybean sector will surely be resilient as our Canadian soybean adventure continues. Big crops, trade wars amid growing South American production have battered the market relentlessly. The challenge for Canadian soybean producers is to balance all of these marketing factors into a plan for profitability.

This article was originally published in the October 2019 issue of the Soybean Guide.

The post Canadian farmers enter a challenging soybean market appeared first on Country Guide.

After the corn seed hits the cold soil and germinates it emerges to face another six months of weather before combines roll through. Along the way the spring chill, summer heat and fall drydown will present lots of production risk. Getting to payday in late fall often can be challenging.

One such challenge took place in the 2018 cornfields of Ontario. After a good growing season, farmers were looking forward to a record corn crop only to have to deal with large vomitoxin (DON) levels in their corn. This was met with large discounts from end-users as every- one in the industry struggled with how to handle this crop.

As we headed into 2019, everyone was looking forward to leaving that behind. Increasing scrutiny in variety selection was certainly part of that process.

In 2019, Statistics Canada expected 2.2 million acres of corn to be planted in Ontario and 3.1 million acres of soybeans. Quebec has the next largest corn acreage at 945,100 acres and Manitoba has 459,800 acres. Total Canadian corn acreage for grain was expected to come in at 3.7 million acres. Of course, in many areas of Canada corn is grown for silage for livestock. In Western Canada there is grazing corn in some of the more northern climates.

Clearly, corn acres have advanced in Canada significantly, but our Canadian winter puts limits on corn production across our country. Frost dates in early fall are very important litmus tests for successful production.

A successful corn economy in Canada is based on good production methods but also the dynamic market where end- users can utilize the corn. In a nutshell, corn is used for feed for livestock and to

make ethanol. Ontario is one province that has a 10 per cent ethanol blend requirement for gasoline sold in the province. That takes approximately 35 per cent of Ontario’s corn production.

There are also food and residual uses for corn as well as the export market offshore. Simply put, corn is a very dynamic crop, which dominates large parts of Eastern Canada and is utilized in a large way domestically.

Profitability is always the goal for successful corn production. Using corn for ethanol in Ontario and Quebec is one example of how value can be added to corn and how those profits can be kept in Canada. Over the past two years Canada has also enjoyed tariff-free access for our corn into the European Union. This has meant that large quantities of Ontario and Quebec corn have been shipped to Ireland over the last two years. This is set to continue, but of course there is always tough competition in the international market from places like Brazil and Ukraine, new players in the global corn market.

Keep in mind we grow corn in Canada, but we are a small fish in a very big pond. The United States is the largest corn producer in the world. In 2018-19 the United States will produce 366.29 million metric tonnes (mmt) of corn. China is the second-largest world producer of corn at 257 mmt. In contrast, Ontario total production in 2018 was 8.7 MMTs of corn.

Corn is traded on the commodity markets at the CME in Chicago. Cash prices in Canada are based on futures prices plus or minus a basis level which reflects local supply and demand with foreign exchange. Basis is the value which determines when grain is moved, bought or sold.

On August 12 the cash price for corn delivered for fall 2019 in southwestern Ontario was $5.18 based on a December 2019 futures price of $3.92 plus a $1.25 positive basis value.

Corn prices have been dominated over the last six years by very good crops in the United States that have boosted supply. For instance, last year’s total corn production in U.S. came in at 14.609 billion bushels. This has been a consistent supply benchmark over the last several years, keeping corn futures prices range bound at approximately the $3.75 futures level.

This year the growing season of 2019 was extremely difficult in the Eastern Corn Belt of the U.S. This resulted in much uncertainty in the market in early spring as farmers struggled to get their crop planted.

This difficult spring resulted in a corn price rally, which topped out on June 17 with December corn reaching $4.73 per bushel. Since that time the market has ratcheted back to $3.92 on August 12. On August 12, USDA predicted a U.S. national corn yield of 169.5 bushels per acre on 90 million acres planted. This will result in a total crop of 13.9 billion bush­ els, not as big as last year, but still a very healthy crop especially considering the problems earlier in the season. This has had a negative effect on prices.

The planting problems in the U.S. Eastern Corn Belt extended northward into Ontario. Despite the Statistics Canada projections of 2.2 million Ontario corn acres to be planted, the reality on the ground was much different. Rain inundated Ontario and parts of Quebec in April and May 2019, which impeded corn planting.

A more realistic figure of how much corn was planted in Ontario would be 1.7 million acres or less. Conditions were less than ideal for planting and this has continued into August. It may put Ontario at a corn deficit situation this fall, depend­ ing on the rest of the growing season. Ontario corn basis levels are higher going into August than past years. That may continue into the fall with a deficient crop.

There were marketing opportunities that came from these production problems earlier this year. For instance, farmers were able to forward contract cash corn for fall delivery and in 2020 at $5 and $6 per bushel in many locations. However, nobody knows what the future holds and the most recent machinations in the market have called for lower prices based on the 13.9 billion corn bushels apparently in American fields.

The bottom line is there is still production risk going forward into September and October, which may affect market prices. Once combines start rolling in the United States, that will be the truest measurement of yield versus all these other estimates.

There are a myriad of other factors, which may affect the corn market. For instance, there has been erosion in the renewable fuel standard south of the border, which was instrumental in putting ethanol into every car on the road. Many small refiners have been granted exemptions from the rules. U.S. exports of corn have also fallen from previous years. The ongoing trade war between the United States and China does not affect the corn complex as directly as it does soybeans, but it is not helping either.

For Canadian corn producers all of this is a challenge. When you export corn you are in competition with others in a global marketplace, and that usually means the lowest price. Brazil, Argentina and Ukraine are increasingly gaining market share in the world’s corn trade.

The reality for Canadian corn producers is their cash corn market is different depending on where they are. For instance, local cash basis levels are different in Manitoba versus southwestern Ontario versus eastern Ontario versus southern Quebec.

What it does mean is there are different marketing realities for all of us with the corn futures market as our default. Standing sell orders are often a good way to capture these marketing opportunities, which happen when you least expect them. The challenge, of course, is to mar­ ket our corn profitably. As this corn crop gets closer to harvest, the market picture will come more into focus.

Harnessing our corn marketing realities will continue to be a challenge. Our corn payday is almost here.

This article was originally published in the September 2019 issue of the Corn Guide.

The post Why the 2019 corn growing season is far from over appeared first on Country Guide.

In 2018 the soybean harvest has already started, with a total crop of approximately 6,320,100 acres. Ontario and Quebec represent the lion’s share of this total producing 3,020,000 acres and 915,000 acres, respectively. In 2018, Manitoba planted 1,890,000 acres of soybeans, down from 2,290,000 acres in 2017. Saskatchewan in 2018 had planted acres of 407,500, which is also down from 850,000 in 2017. The Maritime provinces planted 68,800 acres of soybeans in 2018 and Alberta planted 18,300 acres.

Over the years there has been quite an expansion of soybean acreage into Western Canada. This is likely to continue, but 2018 did see a rollback in this expansion trend. This was largely due to reduced yields in 2017, lower soybean prices and better opportunities with canola. There were also some problems in Western Canada with lower protein content. Needless to say, these problems just represent another challenge to the industry and will surely be addressed in the future. Good soybean weather and better prices will help.

The good weather thing is something that we can’t control even though Canadian soybean producers have employed myriad technology to enhance soybean production. Generally speaking, the weather has been good for soybean production in Eastern Canada in 2018. In Western Canada there have been more issues with drought.

While soybean weather has been good in much of 2018, soybean prices have not been friendly; in fact, prices have descended to their lowest level in nine years. As of September 10, 2018, November futures were $8.49 per bushel. This was down from a spring high of $10.42 on May 29, 2018. In fact, between May 29 and July 13, 2018, the November soybean contract descended to $8.26 per bushel, the lowest in nine years. This precipitous soybean price drop in 2018 was due to two factors, the largest crop ever grown in the United States and the imposition of 25 per cent tariffs on American soybeans imported into China, the largest buyer of U.S. soybeans.

Earlier in 2018 soybean prices had benefited from somebody else’s misfortune. This misfortune took place in Argentina where severe drought cut the country’s soybean production, keeping soybean prices fairly buoyant over winter and early spring. This was followed by the USDA’s announcement that American farmers would plant more soybeans than corn for the first time since 2003. USDA pegged U.S. soybean acreage at 89.6 million acres in 2018, with corn acreage slightly less at 89.1 million acres. The stage was set for a huge crop in 2018.

Soybean plantings went ahead as normal and soybean growing weather was good too. In the August USDA crop report, the USDA predicted a U.S. national soybean yield of 51.6 bushels per acre for a total crop of 4.59 billion bushels, which exceeded all trade expectations at the time. This huge crop also meant that USDA changed expected ending stocks to come in at 785 million bushels, a huge record amount, which weighed on soybean prices.

Big crops always hurt prices regardless of the crop, but this soybean crop in 2018 was also affected in a great way by the action of the United States and China who ramped up a trade war over the summer. The United States imposed steel, aluminum and other assorted tariffs on China and the Chinese responded by imposing some tariffs on American goods, but this included that 25 per cent import tariff on American soybeans. The threat of this caused widespread nervousness in the market and when it actually happened in early July it was devastating to the soybean price. As 2018 grows older this continues to be an anchor on soybean price potential.

The trade war has caused some very strange soybean trade flow. For instance, premiums emerged at Brazilian ports for soybeans after the Chinese announcement. Cash soybean prices have increased in Brazil and decreased in the United States. This has had the effect of encouraging fall planting in Brazil, while encouraging unusual demand for cheaper American soybeans from European sources. For instance, in early September the price for soybeans at Brazil’s ports was $10.31 U.S., while the U.S. Gulf price was a $1.63 less, reflecting an approximate 25 per cent tariff. In fact, with such a difference in price some Brazilians are considering new futures contracts other than the CME to balance off this price risk with China.

How do Canadian soybean farmers make sense of this? How do they adjust their risk management strategies for best price based on this uneven soybean supply and demand situation? It is a difficult situation because the current problem with soybean prices has to do with more than simple supply and demand marketing fundamentals. A trade deal between China and the United States will surely include some type of soybean import provision. However, a trade resolution in the current political environment is almost impossible to imagine. The American government has responded to their soybean producers with “market facilitation payments” of $1.65 per bushel on half their production to ease the pain. However, it would seem nobody is happy in American soybean country and Canadian producers don’t have the same support. It is a very difficult situation.

Canadian soybeans might benefit in some ways, but being priced off U.S. futures makes that difficult. China consumes eight mmt of soybean per month, so with Canadian production at approximately 7.7 mmt annually, we could supply China for approximately 20 days. Illusions of grandeur for Canadian soybeans lay with a trade solution, not substituting for American beans.

At mid-September 2018 Canadian soybean prices were approximately $11 per bushel in southwestern Ontario. Much of this crop headed toward harvest had pricing opportunities in the $12 to $13 range earlier in the year and likely much of it is contracted. However, Canadian soybean farmers need to be vigilant.

The Canadian dollar hovering in the 75 U.S. cent- and 76 U.S. cent-level has been helpful to the soybean basis as it is a direct conversion from U.S. funds. As we look ahead there is also the Brazilian and Argentinian planting season, which will be coming up in October and November. The market will be watching for record Brazilian plantings based on the premiums for Brazilian soybeans into China. All of those factors point to increased Brazilian soybean planting. As Canadians harvest our soybeans none of this bodes well for soybean prices.

However, nothing ever stays the same. It certainly has been a difficult time for Canadian soybean prices under unique and unusual soybean market factors. Markets will adjust and so must Canadian soybean producers. Looking ahead, the USDA will put a final yield on U.S. soybeans in January 2019. By that time Brazilian soybeans will be largely planted and the market will be reflective of that. Hopefully, there will be a trade solution either in the rearview mirror, or much more likely, sometime in the future.

The challenge for Canadian soybean farmers is to measure all of these factors and market their soybeans where they are profitable and comfortable. In 2018, it sure has been a wild ride.

This article was originally published in the October 2018 issue of the Soybean Guide.

The post The wild ride in soybean markets continues appeared first on Country Guide.

Some farmers on social media have even spray-painted their corn on Friday and checked it on Monday. Invariably, there’s a couple of inches of new growth as that corn plant drives itself to tassel on its way to yielding a bountiful harvest.

When it all works, it’s a beautiful thing, (although if weather doesn’t co-operate there can be some bumps on the road!)

Needless to say, corn production in Canada continues to be resilient.

In 2018 corn is mainly used for ethanol, feed and food and industrial uses in Ontario, Quebec and Manitoba. For instance, in the East, approximately a third of Ontario’s crop goes to ethanol production at the different plants throughout the province.

Ontario has had a five per cent ethanol mandate in its gasoline for several years now and is currently moving toward a 10 per cent mandate, which will require even more ethanol. The rest of the corn crop goes into the feed and residual market, which includes DDGs (dry distillers grains). Corn is exported and imported under some circumstances. It’s vital to the health of the Ontario and Quebec economy.

In 2018 according to Statistics Canada, Ontario will produce 2.2 million acres and Quebec will produce 953,000 acres of corn. This represents an increase of 1.7 per cent and 1.5 per cent in corn acreage in Ontario and Quebec, respectively, over 2017.

In 2018 Manitoba planted 428,000 acres of corn, which represents an increase of 4.4 per cent over its 2017 acreage. With Canada’s northern climate, it will always be somewhat of a challenge to push these corn acres upward. However, there is corn acreage across Saskatchewan, Alberta and British Columbia. There is also corn production on a smaller scale in Prince Edward Island, New Brunswick and Nova Scotia.

The challenge for Canadian corn farmers is to produce the crop profitably and to find their sweet spot within the greater global corn market. Corn is traded reasonably freely around the world so it is able to move in and out of Canada depending on the price incentive.

Ontario and Quebec corn producers have enjoyed tariff-free access to the European Union since the adoption of the CETA agreement in 2017. This was also enhanced because the Europeans imposed tariffs on U.S. corn going into Europe after the Americans applied steel and aluminum tariffs on the EU earlier in 2018. It was a bit of an anomaly in 2017-18, but realistically it’s just another example of the myriad market factors which affect the movement and the price of corn.

Corn is grown and exported from Ukraine, Argentina and Brazil, but the world’s biggest producer, the United States, largely determines the overall crop price. The cash value for corn in Ontario and Quebec is largely founded on the corn futures price originating out of the Chicago Mercantile Exchange, adjusted by a “basis value.”

This basis value can be positive or negative versus the respective futures month. For instance, the new crop price of corn in Chatham, Ont., for August 11, 2018, was C$4.72. This was calculated based on a December futures value of $3.72 cents plus $1 basis value. Basis is the value which determines when grain is moved, bought or sold. It is a reflection of local supply and demand in Canadian dollar terms.

The road to determining the cash price for corn in Ontario, Quebec and Manitoba is always a long and winding one. Corn conditions and weather variables in the United States are always the major factor.

What makes 2018 very different compared to other years is that the American farmer actually planted less corn in 2018 than soybeans. This was the second time in history it has happened. In 2018 the USDA has projected U.S. corn acreage to be 89.1 million acres, with soybeans surpassing it at 89.6 million.

As of August 10, when the USDA released its first “in field” survey of corn conditions for the 2018 crop year, the December futures price for corn is $3.71. Earlier in the crop year on May 24, the December futures price reached its high of $4.29. This 58-cent decline in the futures price for corn was related to multiple factors affecting grain markets in 2018. One of those factors is the benign weather that has nurtured the corn crop throughout the summer of 2018, benefiting U.S. corn production.

On August 10, the USDA predicted U.S. domestic national corn yield was at a record level of 178.4 bushels per acre. This was greater than 2017, when yield was 176.6 bushels per acre and greater than the 174 estimated by the USDA previously in 2018. The market was also burdened by the 1.68 billion bushels, an increase of 132 million bushels from the month before. Clearly, these were bearish numbers tempering corn futures prices and futures expectations.

2018 crop weather has been good for corn production and the resultant price drop could almost be telegraphed under these conditions. However, what is different in 2018 is the effect of geopolitics on the price of grain.

With the American move to impose steel and aluminum tariffs on China earlier in the summer there was always a spectre of Chinese retaliation for such a move. That came in early July when the Chinese imposed a 25 per cent tariff on American soybean imports into China.

This was a major geopolitical reason for the $2 drop in the price of soybeans over June and July 2018. Corn prices also fell to some extent in sympathy with that move. The resultant “trade war” atmosphere has led to widespread bearishness in the grain complex.

Changing that phenomena can come quickly or not at all. When pricing grain, it’s very difficult to predict.

The challenge for Canadian corn producers is to price their corn profitably in this environment. Earlier in 2018, $5 new crop pricing was available and surely there was much contracted at that. Basis values for corn fluctuate to some extent based on the seasonal nature of the corn market in Eastern Canada, and to a lesser extent, the value of the Canadian dollar.

Historically, we’ve had too much corn at harvest time, which has been exported out to the United States at fire sale prices only to be imported back in in late spring or early summer. This caused a harvest time low with basis values improving later. However, it is changing greatly as the export market to Europe has gotten better because of CETA.

Also, too, Eastern Ontario basis has traditionally been much higher than Southwestern Ontario. In 2018, this is not as apparent. Typically, as you move east into Quebec, flat pricing of corn becomes more popular. It also can become less transparent. Knowing your local market conditions becomes more important.

Managing all of these market factors can be daunting. Standing pricing orders where farmers can set a cash price with their buyer is one way to manage the risk. Futures can be volatile as can cash basis. Often this volatility happens so quickly, it’s hard to nail down. However, standing pricing orders for corn resting there can get that done. With so many factors swirling within the corn market for 2018 and 2019, it’s a good strategy to employ.

This article was originally published in the Sept. 2018 issue of the Corn Guide.

The post A strategy for uncertain corn markets appeared first on Country Guide.

Canadian soybean production is a vibrant example of the strategy here to satisfy large food demand especially in distant parts of the world.

In 2018, soybeans will likely remain an integral part of Canadian farmers’ production plans. The 3.1 million acres grown in Ontario last year is a far cry from back in the 1980s when Ontario soybean production struggled to get to the million-acre mark. Those days are certainly in the rearview mirror as last year Québec produced approximately 983,500 soybean acres to make Eastern Canada a soybean powerhouse. The Maritime provinces chimed in with 83,500 acres.

That Eastern Canada soybean economy is increasingly being challenged by bigger acres in Western Canada. For instance, in 2013 Statistics Canada first measured Saskatchewan soybean production at approximately 170,000 acres. Those acres have exploded to the point where in 2017 Saskatchewan produced approximately 850,000 acres of soybeans.

The same can be said for Manitoba, where in 2017 almost 2.3 million acres of soybeans were produced versus approximately 1.05 million acres in 2013. Clearly, western Canadian soybean country is growing. A soybean crusher may surely follow. There certainly may be hiccups along the way going forward, but soybeans continue to expand across the country.

The cash price for soybeans in southwestern Ontario as of early January 2018 was approximately $11.30 per bushel. The new crop price for delivery in November 2018 is approximately $11.40 per bushel. These prices are lower than previous years and in Western Canada cash price levels are generally lower than Ontario, reflecting cash market realities. Of course, in 2018 the soybean market will change, flex and react to different marketing factors. What will the price do in 2018? What are some of those marketing factors that Canadian soybean producers need to measure in order to capture those profitable marketing opportunities?

Clues to future price direction are always elusive but a look back on how we got through 2017 is always important. Canadian cash prices are discovered by a combination of a futures price plus a basis adjustment, which reflects local market conditions. For soybeans in Canada the value of the Canadian dollar has a huge impact on the cash price of soybeans. In fact, in 2017 the cash price ranges for soybeans tended to be higher than the futures price range in soybeans. That happened because the value of the Canadian dollar was very volatile in 2017.

On January 12, 2018, the USDA released their final crop estimates for 2017, pegging final soybean production at 4.39 billion bushels, based on a national yield at 49.1 bu./ac. The harvested U.S. acreage for soybeans was up eight per cent from 2016 at 89.5 million acres.

The nearby March 2018 futures value was approximately $9.60 per bushel. Of course, this pales in comparison with the all-time soybean record of $17.89 per bushel reached in 2012. In fact, since 2007 there have been many instances where the soybean futures prices have been a lot higher. We got here with our eyes wide open. Global soybean production has been expanding.

Part of the reason that soybean prices declined into 2018 has had to do with benign weather in the American soybean belt over the last five years, where production has been very stable. Soybean acreage actually increased in the United States in 2017, up seven per cent from 2016 at 89.51 million acres. Soybean futures in early 2007 had been at a premium to corn futures and American farmers decided to ramp up soybean production. This helped garner the 4.39 billion bushels in 2017, which further softened prices. Of course, as we look into the planned acreage in 2018, huge soybean stocks weigh on our prices.

There is a lot more to the story, and any look at the global soybean economy needs to account for Brazil and Argentina. Production in Brazil has been increasing through the years and the country is currently projected to produce a crop of 110 million metric tonnes of soybeans in 2018. This crop is in the ground in Brazil and any production hiccup will certainly affect soybean fundamentals and cause volatility in prices.

Argentina is projected to produce 57 million metric tonnes and along with Paraguay and others represents the growing domination of South America within the global soybean economy. China, always thirsty with an almost insatiable demand for soybeans, buys most of their beans from South America.

Price is always an issue or the lowest common denominator on where China sources their soybeans, but the environment for South American soybeans is also producing a soybean which is higher in protein than American soybeans. This is part of the reason that China is showing a preference for South American soybeans.

Unlike corn, where the United States dominates world production, the soybean global economy is more of a two-headed monster with North American versus South American production in two different time frames during the calendar year. While harvest time in North America is September, October and November, Brazil will plant their soybeans in October, November and December, and Argentina in November and December. Weather-related production problems could have an impact on the South American crop during our winter, which often creates marketing opportunities for Canadian farmers. There is much to consider especially when thinking about the geography and the timing. Daily market intelligence is key.

That daily market intelligence can be difficult especially when a large part of the Canadian soybean price is a positive basis largely created through a lower Canadian dollar. As stated earlier, sometimes volatility in the Canadian dollar will create a wider cash range in price through the year than a futures range.

Increasingly, many Canadian soybean producers are realizing this and they are becoming flat price sellers. In fact, when the Canadian dollar is quite low, as it was in 2017, getting into the $.72 range, selling regardless of futures price seems to be the opportune thing to do. Many producers will watch the value of the Canadian dollar closely looking for the best flat price, regardless of where soybean futures prices are.

Generally speaking, the Canadian dollar moves in an opposite direction of where the American dollar goes. Also, good economic news is good for the Canadian dollar, and Bank of Canada interest rate increases do the same. Canadian soybean producers need to be dialled in to these events.

As spring gets closer there will be much debate on how many U.S. soybean acres versus corn acres will be planted in 2018. This will partially define price movement in soybeans depending on what happens in South America in the first six months of 2018.

Will the United States plant more or less corn in 2018? Will the United States produce significantly more than the 90.1 million acres of soybeans they planted in 2017 or significantly less?

This debate and actual acres planted will influence soybean futures prices greatly as we move further into 2018.

It is the great truth that to increase soybean prices significantly, we need a lot less soybeans in the world to go along with this robust demand.

Nobody wants production problems, but it might take that in some part of the world to increase soybean futures prices significantly. Geopolitical events gone wrong can also affect the futures price of soybeans.

The challenge, of course, is to measure all of these marketing factors in 2018.

Keep abreast of the soybean production cycles here and in South America. Focus in on the Canadian dollar influence on basis. 2018 will surely be a year with many soybean marketing opportunities ahead.

This article was originally published in the 2018 issue of the Soybean Guide.

The post A demanding year ahead for soybean markets appeared first on Country Guide.

Now, as we look out into 2018, corn growers have a myriad of corn market factors to consider.

Corn growers are caught in a vicious cycle. With burgeoning new technologies embedded in every corn seed, there is a constant yield improvement, which is increasingly turning into a default. Some might argue that corn yields are going up exponentially.

Importantly, this phenomenon is true not only in Canada and the United States. It’s also taking place around the world, and it has led to a corn market of ever-increasing supply that in turn drives down corn futures prices.

Of course, we’ve seen vicious cycles in agriculture before, including the kind that leave us asking: What has to come first, the chicken or the egg? Does corn supply have to collapse, or can we hope the global demand will grow even faster?

Regardless, as we move into 2018, we’re getting a fairly clear picture of what we will be facing. The challenge for corn farmers will be to find marketing opportunities despite this cycle.

We need to ask ourselves a few questions. How much corn will be planted in the United States and in Canada, especially in Ontario and Quebec in 2018? Will there be a shift away from corn to soybeans? Will the corn futures price remain in a low range between $3.38 to $4? Will corn demand continue to grow within this cheaper price environment? Is there a black swan event looming on the horizon, which may send corn futures prices much higher?

In the middle of winter, estimating and musing about the 2018 corn crop remains only hypothetical. However, a look back at the 2017 growing season gives us some indication of where the market may be heading.

During 2017, American farmers planted 90.4 million acres of corn, harvesting 83.1 million acres according to the November 2017 USDA report. At the start of the 2017 growing season there was much conjecture within the market that higher soybean futures prices might actually lead to the United States planting more soybeans acres than corn. However, this did not happen; soybean acres came in at 89.5 million acres planted.

The pricing scenario going into winter of 2018 is similar. For example, November 2018 soybeans at the end of November 2017 were $10, while December 2018 corn futures were $3.83. The U.S. cash price using DTN’s national corn index on December 1 was approximately $3 per bushel, with many sub-$3 prices across much of the corn belt. Soybean cash prices were $9.19 per bushel.

How these ratios will affect planting intentions in the spring of 2018 is anybody’s guess. However, like 2017, there is a signal to plant soybeans over corn. Whether it manifests itself in similar corn acres in 2018 will be a major factor in corn futures prices.

USDA released some early projections in late November 2017. They predicted that 2018 corn would come in at 91 million acres with an average yield of 173.5 bu./ac. At current demand this would result in a 2.6-billion bushel ending stock, a huge number. At the same time they predicted that soybeans would tie corn for acres at 91 million, with an average yield of 48.4 bu./ac. and 376 million bushes in ending stocks. These are very big numbers versus 2017.

The acreage numbers will be important in 2018 for shaping the future of corn supply. Increasingly, it’s obvious how resilient the newer corn hybrids are. Statistics Canada this year is predicting an Ontario corn yield of 169.5 bu./ac., which is close to a record. At the same time in the November USDA report the U.S. corn estimate of 175.4 bu./ac. was a record yield.

This came about despite a growing season that was uneven in many parts of the U.S. Even though the USDA initial figure for 2018 is 173.5 bu./ac., with benign weather, that yield could be substantially higher, even more than 2017.

This could catapult us into an ending corn stocks situation that would be worse than onerous, and that would have the effect of keeping corn futures prices in the low range.

This range as we headed into winter was seeing March corn at $3.53 per bushel and December 2018 corn at $3.86 per bushel. This is happening in an ever-expanding supply situation, but demand cannot be ignored. Simply put, corn demand is strong and has been at near-record levels over the last couple of years.

In 2017-18 total corn usage in the U.S. is slated to come in at 14.435 billion bushels. With last year’s production from the November report of 14.578 billion bushels, there is not a lot of room for a production calamity. Needless to say, so far the corn supply is outstripping the record demand and it needs to stay that way for prices to stay low.

The big demand components for U.S. corn are feed and residual at 5.575 billion bushels; food, seed and industrial at 6.935 billion bushels; and ethanol at 5.475 billion bushels. These components, along with exports, make up total demand. The ethanol component of this demand continues to grow slowly but it is unlikely to ever repeat the explosion of 2008. However, low corn prices will likely continue to stimulate feed and food demand. Corn exports from the U.S. largely depend on price as well as the value of the American dollar. Recent moves by the Trump administration against Mexico, the largest American export destination for corn, has led to a curtailment in shipments.

There are more geopolitical issues beyond the tension between the U.S. and Mexico. For instance, China is moving toward a policy of a 10 per cent ethanol blend in gasoline nationwide by 2020. At the present time there are approximately 205 million cars in China, which consume 3.8 billion gallons of gasoline. China has huge corn reserves and much of that would be consumed in expanding their ethanol mandate by 2020. An expanded Chinese ethanol corn policy may ultimately result in an increase in corn demand by 1.4 billion bushels. Of course, it should not be forgotten that this is unlikely to help the corn price in 2018, but it could ultimately be part of future demand helping out our corn price.

In Ontario, corn production in 2017 was approximately 2.015 million acres. Historically, Ontario consumes more corn than we produce. In the past, this has meant that corn has been exported during harvest time (low basis) only to be imported back in during the later parts of spring and summer, when it creates a better basis.

However, this is changing as corn productivity in Ontario continues to grow. It is conceivable that in the future, Ontario corn may remain on an export basis continually. (Conversely, if Ontario domestic demand for corn can be increased substantially, cash basis levels may be sustained at certain times a year, while the Eastern Ontario basis will likely continue to always be higher than cash basis levels in southwestern Ontario.)

The Canadian dollar will have an effect on this to some extent. However, its value does not affect corn basis levels in Ontario as much as it does Ontario soybeans and wheat, where the cash price optics in Canadian funds often look so different than cash prices in the U.S.

Of course, what’s needed to lift corn futures prices is some type of production calamity somewhere in the world to bring corn supplies down. History tells us that this will happen someday. However, when corn futures prices reached $8.49 in 2012, we taught the rest of the world to grow corn. Overseas production in Brazil and the Black Sea region continue to be resilient.

To Canadian corn farmers hoping for $6 corn again, I say, keep hoping. But at the same time, always remember that hope is not a marketing plan.

There hasn’t been a kernel of 2018 corn planted yet. There surely will be marketing opportunities ahead as there are all kinds of potential risks in the coming year. The challenge will be to capitalize on some of these corn-marketing opportunities in a generally bearish environment.

Let’s keep our eyes open. In 2018, there surely will be some surprises.

This article first appeared in the 2018 issue of the Corn Guide.

The post What’s in store for corn markets in 2018? appeared first on Country Guide.

With genetics that fight off all kinds of pests, it’s almost like there’s an explosion in the field as the crop heads into tassel and it shows its full, insatiable drive to give farmers top yield.

Weather can be the great equalizer, as we saw in 2012 when drought impacted the crop in the U.S. However, at the end of the day, for many farmers, corn remains a favourite crop to grow.

The 2017 growing season in the U.S. has been uneven. In the northwest plains of the Dakotas, severe dryness had an impact on crops through early summer. This drought boosted wheat prices, but also had a negative impact on corn potential in that area. In the eastern and mid-southern U.S. corn belt, meanwhile, spring weather was much wetter and caused planting delays.

As the crop entered the summer, hot and dry forecasts continued to challenge the crop on many levels. However, in mid-July the forecast changed to a cooler forecast, taking some of the pressure off.

Needless to say, the USDA, as of early August 2017, was still projecting a U.S. national corn yield of 170.7 bu./ac. on 90.9 million acres planted. Private forecasts, by contrast, ranged from 170 down to 162 bu./ac.

Getting here in 2017 has been a bit of an adventure. New crop soybean prices held steady during the winter months of 2016/17 presenting a pricing scenario that seemed much more profitable than corn at the time. Many analysts had predicted that U.S. soybean acres might outstrip U.S. corn acres for the first time in many years. However, although that did not happen, the 2017 corn acreage did fall 3.1 million acres from last year, and soybean acreage was up seven per cent.

• Read more: Calculating your true break even point

With this reduction in U.S. corn acres as a backdrop, it might have seemed reasonable that higher corn prices might be in the offing for 2017 and 2018. However, that has not been the case. In fact, since the start of 2017, spot corn prices south of the border have been reflective of a market that is satisfied with both supply and demand.

But 2017 can make us more confident that there will be increased futures prices ahead.

Part of the issue holding back corn prices in 2017 is the onerous old-crop situation in the U.S. Even going into mid-August, the old-crop ending stocks left over from last year were projected at 2.370 billion bushels. This is with a stocks-to-use ratio currently at 16.3 per cent.

The projected ending stocks for 2017-18 are 2.325 billion bushels based on a production this year of 14.255 billion bushels. The new-crop ending stocks to use ratio is 16.2 per cent. Simply put, it is a very bearish supply-sided old-crop corn scenario, and it is weighing on new-crop price potential. It is one of the main reasons why the corn futures price is so range bound.

With those numbers, it is easy to have your eyes glaze over. What’s the point of even watching the market? However, there are glimmers of hope and there are rays of light within the corn complex, which may offer marketing opportunities in the future.

Corn demand is one of them. For the corn growing in the field now, projected demand is 14.350 billion bushels. This is an incredible figure and it requires U.S. production levels to be maintained on an annual basis. Feed demand is projected at 5.475 billion bushels (bbu), and ethanol production is projected at 5.5 bbu.

Yes, the market fundamentals present a generally bearish picture. However, at the same time the demand numbers are so dynamic that it would only take a small production shortfall in the U.S. to send prices much higher and force demand to be rationed.

But when will that production shortfall come?

It does not look like it is on the horizon in 2017, but it will eventually be here. Farmers should not lose hold of that reality, even though at times it feels like bearishness in corn will last forever.

In Canada, meanwhile, the great challenge for corn growers is to co-ordinate the two layers of crop marketing strategy. Specifically, we have basis risk, and we have futures risk. They are separate, and need to be addressed as separate.

In Ontario, for instance, there are historical patterns to the corn basis which, if watched carefully, can be rewarding. Typically, Ontario does not produce as much corn as we need, but a supply or delivery glut often leads to a very low basis level at harvest. In fact, corn is usually exported to the U.S. in the late fall and winter, and sometimes imported back into summer with a corresponding higher import basis.

This corn basis situation differs across regions of the province, however, as well as into Quebec. Generally speaking as you move east, the corn basis is higher. In fact, in Quebec, flat pricing is king. This is a constantly changing cash price situation, to some extent governed by the Canadian dollar, but also by the demand for corn in that particular area and by the proximity of neighbouring U.S. replacement corn supplies. This cash price equation for Ontario and Quebec cannot be ignored. Sometimes basis fluctuations can trump futures moves in corn. It will be a continuing challenge for eastern Canadian corn growers into late 2017 and early 2018.

The new-crop cash elevator price for corn in southwestern Ontario in early August 2017 settled at approximately $4.40 a bushel. The old-crop price for any corn still in the bin was approximately $4.25 a bushel, with prices about 50 cents higher in eastern Ontario. These prices are reflective of ample supplies in Ontario as well as a Canadian dollar which rose to 80 U.S. cents from the 72 U.S. cents level on May 2, 2017.

The U.S. replacement price for corn was approximately $4.92 in early August. It is a classic Ontario market situation, where ample supplies are keeping the cash prices down.

Successive USDA reports going into January 2018 will help define U.S. total corn supply for this year and next. These USDA reports serve as flashpoints in the corn market as speculators embrace USDA data. The USDA had predicted 170.7 bu./ac. corn crop earlier in 2017, but we will see how well this holds up as we get into harvest, with the final yield report due in January 2018. Corn producers need to be aware of these reports as they always have a significant effect on corn futures prices.

There are a myriad of market factors at play that still could affect corn prices. Brazil and Ukraine corn production continues to expand and challenge U.S. export markets, especially at certain times of year. Geopolitical events can also disrupt markets. There is always the prospect of a “black swan” event (unexpected sudden major event), which could impact corn prices higher or lower.

Standing cash corn market orders can be a good tool to use in this corn market environment to sell grain.

Corn might be a brilliant crop to grow, standing tall and handsome, but the corn market has a life of its own. The challenge for farmers is to immerse themselves in the various market factors. Daily market intelligence will always be key.

This article originally appeared in the September 2017 issue of the Corn Guide.

The post Watch those corn prices appeared first on Country Guide.

For eastern Canadian farmers, corn has earned its status as the “go-to” crop for the region. A few years ago, this was because the price was quite high, but lately it has more to do with productivity. In 2015, the Ontario corn crop yielded roughly 170 bushels per acre. And in 2016, despite drought in many parts of the province, the overall yield is still likely to finish in the 160 bushel per acre range.

Over the last 20 years, corn productivity has been climbing by approximately 2.3 bushels per acre per year. However, in the last five years this productivity rate has been accentuated upward, largely thanks to genetics.

Of course, productivity is a vicious cycle; the more corn we produce, generally speaking, the more corn we find on the world and Ontario corn markets, pushing the price lower. It’s a never-ending conundrum, as we saw again in 2016 when U.S. and worldwide corn production increased.

So as we look into 2017, corn producers face a challenge of abundance. In 2016, the American farmer produced a record crop of corn, which is weighing on our corn futures market. Despite not having highly profitable signals to plant corn in 2016, those U.S. farmers produced a record crop of 15.226 billion bushels, according to the November USDA crop report. The U.S. had an average yield of 175.3 bushels per acre, another record. The new record (15.226), when compared to the 2015 total of 13.601 billion bushels, seemed almost science fiction in its magnitude.

This big crop in the United States forced an early low in the corn market of $3.14 on August 30. Corn futures prices rose after that into late October only to fall to $3.37 on December 2. Needless to say, this big crop continues to weigh on corn futures prices. Projected ending stocks for the 2016-17 corn-marketing year have ballooned to 2.403 billion bushels.

With that as a backdrop, producers in Eastern Canada have a great challenge as they look out into 2017. How many acres should be planted to corn in 2017, especially at a time when soybean prices have been more buoyant? What are the factors that will affect the market in 2017, perhaps pushing the corn futures price higher? How will the Ontario cash corn market be impacted in 2017, especially at a time of a low Canadian dollar? What are the other market factors aside from supply and demand that may play a role in the price of corn in 2017?

It is easy with those large supply numbers to be somewhat pessimistic on corn for 2017. However, the one shining star within the corn complex is record corn demand at 14.610 billion bushels as of the November 2016 USDA crop report.

This demand is higher than 2015 corn production and continues to grow, which is a very good thing because it is preventing futures prices from going lower on the year when we have had record crops. It is also a very good thing because the growth in corn demand will not be easily slowed when corn production is curtailed someday through some type of weather-related event.

In times of big surplus, that reality can seem so far away but, in fact, it will happen at a certain point. This record demand will eventually help the corn price, although getting there may be an adventure.

Part of our jigsaw puzzle may be put in place this coming winter with the production of corn in Brazil. USDA is currently estimating the corn crop growing in Brazil to 83.5 MMT, but many private estimates within Brazil are higher. Argentina is also set to produce more corn this year, and those two areas in the southern hemisphere will be important to watch this winter as their crop matures. This production coming out of South America may have a further impact on the futures price.

South America, parts of the Black Sea region and a few other countries have an impact on the price of corn in some parts of the world through their exports. However, the United States is by far still the largest producer of corn in the world and the largest corn exporter.

Looking ahead into 2017, the number of U.S. acres that get planted to corn will have a big effect on corn prices. In 2016 American farmers planted 94.5 million acres of corn, which was significantly higher than the year before where they planted 88 million acres. In the spring of 2016 there was little price incentive to plant that much more corn, but it was done anyway. How might this manifest itself in 2017? Will the American farmer plant just as much corn? Or more? Or much less?

An argument could be made in the late fall of 2016 that there would be more soybeans planted versus corn in 2017. The reason for that is that soybean futures were $2 higher than at the same time in 2015 for an extended period of time in the late fall of 2016. With record soybean yields coming off the fields in 2016 and with significantly higher soybean futures prices, an argument can be made for a switch to soybeans in 2017.

Of course, at this early stage it is difficult to say. With corn productivity jumping on an annual basis, those price incentives might not be as powerful as they once were in the decision-making process, and good planting weather can also do wonders for spring corn planting.

But then, too, there are lots of unknowns ahead, including how the Trump administration will deal with ethanol and any changes in the renewable fuel standard. There is also concern how agricultural trade might be affected under a Trump administration.

In the late fall and especially after the Trump election, the value of the U.S. dollar has strengthened significantly. Eco­nomic growth rates in the United States are rising and this has also caused the U.S. dollar to rise. With the possible interest rate hike from the U.S. Federal Reserve, this will likely strengthen the U.S. dollar further. A stronger U.S. dollar is a headwind for corn futures prices as it makes it more expensive in foreign currencies. In fact, a higher U.S. dollar is mostly a negative for agricultural commodity demand. As we go into 2017, this remains a concern.

In Eastern Canada, our US$0.75 dollar as of early December has helped Ontario cash grain prices go over $4 bushel. Earl­ier in 2016 Ontario had an import basis for corn. However, a crop that was deemed damaged in Ontario from drought has been much better than expected, and Ontario basis levels have dropped partly because of that.

With the ending of the Ontario Ethanol Growth fund on December 31, 2016, those plants will lose their subsidies. However, the Ontario ethanol sector is strong because of the support they had received, and will likely be healthy into the future.

Last year Ontario planted 2.015 million acres of corn and in 2017 will likely plant that again or more, especially since wheat acres are down slightly from 2016 levels. As of early December 2016, new crop cash prices for corn are approximately $4.60 per bushel on a December 2017 futures value of $3.77.

As we look into 2017, the challenge for eastern Canadian corn farmers is to measure all of these market factors. A production calamity somewhere in the world will likely be needed to shed much of the burdensome supply within this market. 2017 weather in the prime U.S. corn-growing areas will likely determine the size of the crop again. On that path, there will be much uncertainty as the crop is made.

That means there will be many marketing opportunities for Ontario farmers, who, at the same time, must factor in the volatility of the Canadian dollar.

As winter goes along the possibilities may become clearer. Standing pricing orders are always useful. Daily market intelligence is key.

This article was originally published in the January 2017 issue of the Corn Guide

The post Finding hope in 2017 corn markets appeared first on Country Guide.

Simply put, soybeans are challenging the production limits imposed by Can­ada’s climate and topography. The crop’s future seems very bright.

The acreage statistics in Canada are particularly striking in Western Canada. For instance, according to Statistics Can­ada 1.86 million acres of soybeans were grown in Manitoba and Sask­­atch­ewan in 2016. This breaks down to 1.625 million acres in Manitoba and 235,000 acres in Saskatchewan.

This means soybean acreage in Man­itoba has more than doubled over the last four years, while Statistics Canada just started measuring soybean acres in Sask­atchewan in 2013.

Incredible as it would have seemed just a few years ago, we are now looking at the very real likelihood that soybean production in Western Canada is on a path to outstripping production in the east.

However, in 2016 we are still a long way from that.

In Ontario, 2016 soybean production area is set at 2.715 million acres, with Quebec production area set at 803,100 acres. These production acreage figures are actually down from 2014 levels and will likely remain static for the foreseeable future. There is limited acreage to expand in Ontario and Quebec, and usually there is a trade-off with corn acres every year. How­ever, you never know where new technology will take you. Soybean productivity is always an ongoing challenge.

Weather in 2016 has been disappointing in the East, with an extended drought in Ontario. Statistics Canada is predicting a yield of 41.6 bushels per acre in Ontario, 45.4 bushels per acre in Quebec and 35 bushels per acre in Manitoba. These yield estimates are all down from 2015. However, these estimates are from the July report on principal crops. August and September rains may have improved that picture.

Production is one thing, and marketing the crop is another. A year ago nearby soybean futures were approximately $8.70 a bushel. However, as of mid-September this year, nearby soybean futures were trading at about $9.80 a bushel. This is similar to September 2014 when the nearby soybean futures were $9.85 a bushel.

Admittedly, this is a far cry from the record soybean futures price high of $17.89 hit in 2012. Those prices have been cut over the last few years as farmers around the world have ramped up soybean production.

As the 2016 harvest continues, there is much for Canadian soybean growers to consider. How will prices move over the next six months? Will geopolitical events around the world affect the soybean market in a positive or a negative way? How will the Canadian dollar continue to impact the pricing of soybeans? How will the South American soybean production economy influence the outlook for Can­adian producers this winter?

For Canadian soybean farmers, futures trading at the Chicago Mercantile Exchange forms the foundation for the prices received in Canada. The nearby futures price plus a basis evaluation converted into Canadian dollars gives us our Canadian cash price at various locations throughout Canada. These futures prices are traded at Chicago and are affected largely by the big soybean production areas in the U.S. and in South America.

Currently, the very large crop grown this year in the U.S. has affected soybean futures. According to the USDA in its August report, American farmers are expected to produce 48.9 bushels per acre of soybeans on 83 million acres in 2016. This is record production (4.060 million bushels, or 149.2 MMT) and it is weighing on soybean futures market prices.

This production number may be changed in successive USDA reports going into the January 2017 final report, but there is little question that we are dealing with a very large American soybean crop.

When considering soybean prices, one should always think about the geographic duality of the soybean market. For instance, South America soybean planting begins in October, with harvest generally taking place March to May. Of course, it is almost the opposite in the northern hemisphere. This means that there two cycles annually when major production areas are at risk, and prices respond accordingly.

For Canadian soybean producers this is always relevant. Keeping an eye on developments in these regions is always very important.

Last year’s 2015-16 South American soybean production was less than expected, but still very large. Brazil produced 96.5 MMT of soybeans while Argentina produced another 56.5 MMT. The USDA has projected for the 2016-17 season Brazilian production at 103 MMT with Argentina coming in at 57 MMT. This will add to supply concerns.

Supply has been onerous, but it has been tempered to a large extent by seemingly insatiable demand growth. This is part of the reason why, even with growing production, soybean prices remain higher than last year.

World demand last year was 300.90 MMT of soybeans; this year it is estimated at 317.20 MMT, and next year’s demand is projected at 329.28 MMT, according to USDA numbers.

Simply put, demand is growing for soybeans and production has been challenged to keep pace. China remains the world’s largest importer of soybeans, at 95.5 MMT this year, compared to 87.20 MMT last year, and a projected 101.20 MMT next year.

This means that despite current soft futures prices, the market remains dynamic; any production blip around the world this winter will likely send prices higher.

The Canadian dollar remains a distinct advantage for Canadian soybean farmers. In many ways it has been the whole story for grain prices in Canada over the last two years. With the loonie hovering around the 76 to 77 U.S. cents level in early September, basis levels were in the plus $2.40 range with cash prices at $12.20 bushel. This is based on a soybean futures value of $9.80 a bushel.

If the loonie were at par with the U.S. dollar, cash prices in Ontario would be substantially less than the futures prices. As the loonie moves up or down, cash prices to Canadian producers are greatly affected. The soybean basis is a direct conversion of foreign exchange to the end-users.

In Ontario and Quebec, soybeans are exported as well as crushed at domestic plants. In P.E.I., the soybean basis is calculated based on the distance to the processor in Quebec or the cost to ship through Halifax. In Manitoba, soybeans are either exported offshore or sent south to U.S. crushers. There is always a significant non-GMO market in Ontario and Quebec that ebbs and flows each year with appropriate premiums. These soybeans go to end-users in Asia for human consumption.

Of course, farmers want to know whether soybean prices will be $12, $13, or even $14 in the near future, or whether the market will slide instead, hitting $11 followed by $10, $9 and $8 in the months to come.

Nobody knows for sure, but the Canadian dollar will remain a key factor for soybean prices this fall. The big U.S. crop being harvested will surely continue to weigh on futures prices.

South American planting starting in October will also be a key driver in soybean price direction. The current soybean futures market is inverted, meaning the market is giving a premium for soybean sold now versus outward months. For those wanting to take advantage of that, selling soybeans now and replacing with an options call strategy may be another avenue.

The challenge for Canadian soybean producers will be to measure all of these market factors. Canadian soybeans in 2016 have had their weather-related production issues. However, even with burdensome supplies worldwide, cash market conditions in Canada are favourable. Daily market intelligence will remain key.

This article was originally published in the October 2016 issue of the Soybean Guide.

The post A year to watch soybean markets appeared first on Country Guide.

Such a severe drought doesn’t happen very often. At that time it drove corn futures to an all-time high of $8.49 a bushel, which not surprisingly then made the whole world want to grow corn, and which in turn is why prices have slid the long way down ever since.

But market demand is its own story. For instance, this year the USDA is projecting corn demand to be 14.5 billion bushels. This is huge especially considering that last year at the same time corn use in the United States was lower than this by 500 million bushels.

The world still wants corn, especially at lower prices. It is almost like a challenge of abundance. Good weather and improved genetics and crop management produce ever bigger corn crops.

However, that abundance usually comes with lower prices and bigger surpluses. At mid-July 2016 the old-crop corn stocks-to-use ratio was still sitting at 14.7 per cent, compared to last year’s 12.4 per cent.

Strong corn production in the U.S. is the key to sustaining these markets.

Getting here has been an adventure, however, and it has taken the better part of eight years since that first run-up in corn futures prices to the $8 level.

Before 2008, U.S. corn farmers were given the challenge to produce corn for ethanol to satisfy the renewable fuel standards (RFS) brought in under the U.S. Energy Act. At the time this meant that corn production would need to climb significantly in order to satisfy this demand. As prices went up because of increased ethanol demand, the 2012 drought added to the corn price effervescence.

Today’s ethanol demand for corn in the United States is 5.275 billion bushels, but production has risen over time to feed this demand, and we are now back to futures prices similar to those before the great ethanol boom erupted.

The implications for corn producers especially in Eastern Canada are telling. Over the last eight years, corn prices have been significantly higher than the $3.30s we saw in August. Many younger producers have become used to those prices.

At the same time, corn productivity has shown healthy annual gains partly based on improved genetics and management techniques. This has led to higher profits than usual in the corn market.

Now, in 2016 it looks like those days are over.

Big production in the U.S. has been the biggest reason for the lower futures prices. On August 12, 2016, the USDA released its corn estimate of 15.153 billion bushels, up significantly from its estimate of 2015 at the same time of 13.6 billion bushels. Even with the huge demand figure of 14.5 billion bushels, U.S. ending stocks are expecting to come in at 2.4 billion bushels. These huge supply numbers have swamped the corn market.

Clearly, it is what it is, but for producers with corn there is hope. Markets are cyclical and the corn futures market is legendary for its gyrations. The U.S. corn yield projection from USDA is 175.1 bushels per acre going into the September USDA report.

Any change in U.S. yield projections will have an impact on prices. The Brazilian crop was down 10 per cent in 2016, meaning Brazil will import U.S. corn for their poultry sector.

Interestingly enough, change may come from North American production in 2017 with the possible formation of a La Niña weather pattern and unfriendly crop conditions. Although, this might be a factor for prices in 2017, some of it will surely catch some of the 2016 old crop.

Weather is always a wild card, and this surely will continue.

In Eastern Canada the saving grace for Ontario and Quebec cash prices has been the value of the Canadian dollar as of August 2016 valued at approximately US$0.7680. This has been extremely important to cash price, although in some ways, it’s a bit of a price illusion as low corn futures prices in the $3 to $4 range translate into Canadian cash prices of $4 to $5 a bushel. As the Canadian dollar gyrates, so too does the cash price.

The Canadian dollar is a thinly traded currency compared to the U.S. dollar. As the U.S. dollar moves, usually the Canadian dollar moves in the opposite direction. Global instability usually means strength in the U.S. dollar and acts as a drag to agricultural commodity demand.

Brexit’s continuing instability should support the U.S. dollar, and future moves by the U.S. Federal Reserve to possibly raise interest rates would support it too. This will continually give clues on the direction to the Canadian dollar and basis levels.

The Canadian dollar affects basis levels for corn, but the eastern basis is also influenced by the quality and quantity of corn supplies within Ontario and Quebec. In 2016, the crop size is still being measured, but it will clearly be significantly less than the 170 bushels per acre recorded in Ontario in 2015. In fact, Ontario has been importing corn in the summer of 2016 and if drought conditions continue in many parts of the province, an import basis may become much more common.

In other words, expect higher basis levels than the past few years for Ontario corn. Drought does have its price, and for many regions of Ontario in 2016, the corn crop is paying that price.

This will be very challenging to Canadian corn farmers. In August 2015, the Canadian dollar was valued at approximately US$0.91. In August 2016, it is approximately US$.7680. That movement in the Canadian dollar during late 2015 was the whole story with regard to pricing cash corn during that period. This is always the inconvenient truth of pricing corn in Canada. Futures prices move and do what they do, but when you have a precipitous drop in the value of the Canadian dollar like we saw last fall, sometimes that is the key factor to pricing Canadian grain. It is really nothing new, but going into the harvest of 2016 foreign exchange is likely to remain very important.

The market reality in August 2016 for corn is bearish, but keep in mind that the market is very fluid.

Nothing ever remains the same, especially when it comes to corn futures prices and the corn market.

It also may mean, the bottom is yet to be found. Much will depend on the U.S. dollar value going forward as well as how South America adapts to changing corn prices. With the Brazil crop size down this year, will they plant more next year? Argentina is expected to plant more corn in the fall as the new government has changed the schedule of export taxes on commodities.

No discussion about the corn market is ever complete without talking about ethanol. In the U.S., ethanol demand is the highest ever, but much will depend on the outcome of the U.S. presidential election. A different president may have a different opinion about continuing the ethanol mandate.

In Ontario, subsidies from the Ontario Ethanol Growth Fund come to an end on December 31, 2016. The administrative end of the program comes at the end of March 2017. Ontario’s ethanol refiners will have to find their way forward.

It is a low-price corn scenario, which we’ve seen before. However, change is our only constant in agriculture. Combines are yet to roll and late-summer weather could still change the U.S. yields.

USDA reports will surely continue to serve as flashpoints for price volatility. The challenge for eastern Canadian corn growers will be to market where they are profitable and comfortable. There will be corn-marketing opportunities ahead. Daily market intelligence in both the cash and futures market will be key.

This article was originally published in the September 2016 issue of the Corn Guide.

The post Taming bearish corn markets appeared first on Country Guide.