Commentary

Rural Voice July 2018

With all the heat we have been experiencing this summer there doesn’t seem to be anywhere in the province that wouldn’t welcome more rain.  While some areas have had decent precipitation, there are many other spots where crops are suffering extremely.   It seems this year that most locations either miss the rains completely or they get large downpours with a lot of accumulation over a short period of time.  This same pattern is predicted to remain throughout the summer according to Environment Canada.  Heat and humidity and scattered downpours are forecast to continue similarly to what we have seen.

Wheat is typically a crop that can perform well in a dry environment.   Typically dry weather still produces good yields as the crop often finishes before moisture reserves are depleted and the extreme summer heat arrives.  This year it was not the case as the lack of rain, even for months in some places, and the intense heat shortened the fill period in the wheat heads.  Consequently yields are off from the previous two growing seasons.  Overall yield reports seem to range from the 60 to 95 bushel per acre range, with what seems to be an overall average of 75 to 80 bushels per acre.  This estimated yield is below trendline and demonstrates the difficult finishing period for the crop.  With a shortened grain fill period yields suffered.  Quality however has been good for the most part.  With the dryness and the heat fusarium head blight did not affect the crop, making the crop clean with no vomitoxin concerns.  Test weights are running well within a Grade 2 predominately and falling numbers are well above miller’s requirements.  Aside from somewhat disappointing (but acceptable) yields Ontario produced a nice crop of very marketable wheat. 

Not every region had a good quality Soft Red crop as we did.  In our surrounding geography parts of Southern Michigan and Ohio had some vom problems – with some results 10 ppm or higher in some fields.  The thumb area of Michigan saw poor yields from dryness and heat at the wrong time likewise.  The Pennsylvanian crop seems to be the worst of all – too much rain in the area throughout the year caused a quality disaster.  These factors bode well for Ontario’s wheat crop to move into these channels.  They need quality wheat and we have it again this year.  Michigan, Ohio, New York and Pennsylvania will all be strong buyers of Ontario Soft wheat throughout the year. 

Conditions for parts of the Ontario corn crop are getting dire.  Areas that haven’t seen significant rain are seeing stunted corn burn up in the field, yield potentials have been reduced and total crop failure is an unfortunate possibility for some growers.  Others have been lucky and have received timely rains and the crop should run very well.  Overall it seems Ontario is losing yield potential daily.  This is too bad as Canadian corn is currently trading into European markets and is in big demand.  Consequently corn basis is strong and should stay strong with big export demand and processors and feeders reaching for old crop supplies that the grower does not want to sell.  The uncertainty for new crop production will keep a solid bid in new crop basis as well.  Ontario soybeans have a similar story.  Export markets are commanding premiums for non- US sources due to on going trade disputes.  This has brought extraordinary demand for Ontario beans and if these trade disputes continue we will likely see bean basis higher yet. 

Grain futures prices have not had such a good story.  Soy futures have fallen to levels not seen for over a decade.  Corn and wheat futures prices similarly don’t impress any growers.  A big yield outlook in the US and unresolved and uncertain trade issues weigh on the market.  Currently the futures prices indicate that record yields should be achieved in the US corn crop.  Is this likely?  The US has experienced similar heat extremes to what we have, with corn pollinating during this heat with high night time temperatures.  This typically does not bode well to produce record crop yields.  There is talk that Midwest corn states could see ear tip back, with cobs not pollinating to the tips – reducing the likelihood of record yields.  If corn yields are trendline world ending stocks could be the tightest in 45 years.

Soybeans have the opposite problem, in that yield expectations continue to increase.  Ideal soybean growing conditions are being reported throughout key US growing regions.  Couple that with trade disputes and Chinese tariffs on US beans and the outlook for soy prices is bearish.  US ending stocks are estimated to grow to record high at 580 million bushels and world stocks are expected to grow to a record high 98 + million tonnes.  Currently the USDA is estimating bean yields at 48.5 bushels per acre.  With ideal weather we could see yields in excess of these levels.  In the 2016-2017 growing season US yields were 52 bushels per acre.  If we were to see yields push this high again then the US stocks to usage ratio would push to greater than 20%.  Long story short if we see positive news in US trade soybeans will likely see a short term recovery rally and one should consider selling into this strength with growing inventories.