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Market Commentary

By Scott Krakar

September 18 2015


Those who produce commodities have firsthand knowledge about the much publicised price slump that currently exists in most of the commodity sectors.  Unfortunately Ontario’s grain farmers have not been exempt from this price weakness, as prices have been pressured around the globe.  The economic news about China continues to report that their demand for commodities remains weak, especially when compared to recent year’s consumption.  Concurrently the U.S. dollar strength continues to be prominent, with the anticipation that the U.S. Federal Reserve will be the first central bank to raise interest rates.  These two situations combine to add tremendous price pressure to commodities.  Consequently countries that are commodity based economies have experienced devaluations in their currencies.  This of course has not only occurred in the Canadian dollar but also more notably with that of the Brazilian currency.  In 2011 the Brazilian currency was almost at parity to the US dollar, peaking after a 15 year appreciation in value.  Since this time Brazil’s currency has suffered steep losses and trades at about $0.25 to the US dollar.  Due to the currency depreciation the Brazilian producer still enjoys soybean prices similar to what was received when grain futures prices were much higher.  Brazilian grain production reflects this profitability.  In 2014 Brazil accounted for 7% of the global agricultural sector and commodities represented 44% of that countries total exports.  The increase in commodity exports has occurred predominately because of China’s aggressive consumption growth.  15 years ago China was the 12th largest export destination from Brazil.  Today China is Brazil’s largest customer of goods.  Indeed agriculture is important to the Brazilian economy and they will continue to grow with the profits they receive.


In its recent September report the USDA lowered corn yield expectations to 167.5 bushels per acre from previous estimates of 168.8 bushels per acre.  Harvested acres were left unchanged however many analysts expect acreage adjustments to be reflected in the October USDA report.  There appears to be a consensus currently that there will be further reductions to yield estimates along with acreage reductions in further reports; leaving the implication that the market low for corn has passed.  While production estimates can be challenged, year to date exports cannot.  Currently the US is 3.5 Million tonnes behind last year’s export sales pace.  Despite the possibility of lower production the market is currently focused on the lack of demand and attempts to rally will likely find resistance until demand is found.  In many parts of the US corn harvest has begun in good earnest and harvest pressure will likely cap rallies in the near term. 

Ontario’s corn is experiencing conditions similar to much of the Eastern US corn belt.  Dry conditions through August, followed by hot temperatures has caused much of the crop to shut down prematurely.  This shutdown began late in August as the bottom leaves began to “fire” and dry up as the plant translocated nitrogen in order to fill the kernels.  This situation, albeit common in much of the province is not the state of all the corn in the province.  The variability of the crop is very large making yield predictions difficult. 



Following the release of the September USDA report November soybean futures traded briefly to a six year low.  The US average yield estimate was increased from the prior estimate to 47.1 bushels per acre compared to last months estimate of 46.9 bushels per acre.  Last year the US grew a record yield which was reported at 47.8 bushels per acre.  Soybean acres were unchanged between the August and September reports.  Similar to the discussion in corn, there is speculation among many that subsequent reports will show both yield and acreage reductions.  Soybeans have faced the same weather problems as corn and therefore yields are expected to be highly variable.  The bean crop experienced early season flooding and late season dryness.  August is typically known to be the month that makes beans.  How were the August growing conditions?  They were both hot and dry.  Many beans have shutdown early due to the dry conditions and bean harvest has had an early start in Ontario.  Do beans that shutdown early from August dryness produce next to record yields? 


The early start to the soybean harvest has implications for both old crop (2015 harvest) and new crop (2016 harvest) wheat.  Old crop basis has been pressured as producers have looked to ship some of the remaining wheat off farm to make way for the rapidly maturing soy crop.  This additional wheat movement was met with an elevator system that was also preparing for beans, limiting the immediate space available for wheat.  New crop plantings are expected to be large this fall and the early harvested soybean crop should allow drills to be in the fields early, unlike the past few years when wheat acres were limited due to late fall harvests.  It is possible for Ontario to plant over 1 million acres of winter wheat this season. 

Wheat futures remain weak as the market struggles to find demand.  This is especially true with the hard red spring crop, which was exceptional in the US.  Therefore spring wheat prices are lower than they would be traditionally compared to soft wheat.