Commentary

November 15 2017

After what seemed like a tough growing season, harvest has been producing some surprising results.  Corn is running well off the combine, with many growers estimating near record yields.  Overall quality of the corn crop is good this year, however many areas have been seeing light test weights.  Some regions of the province are running into storage space issues.  Fortunately some areas where there were concerns that elevators may not handle much corn are seeing good receipts.  Mycotoxins, most notably vomitoxin, which was severe across south western Ontario last year, will not be a widespread problem this year as the majority of the crop is testing low for vom.   A low vomitoxin crop is good for producers as they will not have quality discounts or rejections due to vom as they deliver to the end user.  Likewise end users have greater marketability of co products and have less challenges and risk sourcing corn, especially for the most vom sensitive users. 

Harvest seems to be occurring over an extended period of time, not surprisingly with the variability in planting that we saw in the spring.  Early planted beans were harvested long ago, while many late planted fields were not mature enough for harvest before the wet weather came in November.  While most of the beans had been harvested by mid- November, there were still regions where bean fields were waiting for drier weather.  Many early harvested beans allowed strong wheat plantings to occur into good, dry soil conditions in the province, with many estimating wheat plantings at about mid to high 800,000 acre range. 

Producer grain marketing is very quiet, especially considering harvest typically sees lots of grain sales.   Producers are just not willing sellers at today’s prices, with prices drifting lower.  As a consequence basis levels are strong.  This same trend will likely continue for an extended time, with producers holding tight to bushels and only selling as storage space or cash flows demand.  Couple slow farmer selling with wide carry’s paying commercial elevators to hold grain and the outlook for basis is to remain firm.  The weakness in the Canadian dollar continues to benefit local producer prices.

Throughout the growing season, there were many important growing areas in the US where challenging weather was reported to have damaged the crop.  These concerns seem to have been unfounded and many yield reports have been almost unbelievable.  The USDA report on November 9th estimated the average US corn yield to be a remarkable 175.4 bushels per acre.  With yields like this there is the potential for US carryover to approach or exceed 2.5 billion bushels, an incredible amount of production carryover.   Since it is not the corn growers selling the market lower who is?  It is the money manager/large speculators that are pushing the market lower.  Many analysts are talking about the possibility of these players pushing the limits on their shorts positions to record levels.  In other words speculators may have more corn sold than they ever have.  Often when funds push to record levels we can expect a catalyst to come into the market which causes them to buy back their contracts and this causes the market to bounce.  While we can’t rule out this type of price action from happening one has to wonder what that catalyst could be.  One possibility could be poor South American weather, though this region could also have strong production this year as well.  US export demand is not overly strong and their biggest export destination continues to be Mexico and fears are that NAFTA negotiations may change this relationship.  Bottom line is current expectations are for the corn market to continue to drift lower as bushels try to find a home.

Before the November USDA report many were predicting US soybean yields to fall from previous estimates.  After all, August and September showed extremely dry conditions in important growing areas and the assumption was that this dryness would impact final yields negatively.  Well things don’t always go as expected and US soybean yield estimates were not lowered.   US soybean sales have been disappointing and now it seems that soybean carryout will grow to record stocks.  US soybean prices are reported to be competitive into the world marketplace and yet sales haven’t been overly large.  There has been a lot of excitement in regard to President Trumps visit to China and commitments made for soybean purchases, with some thinking that this will bring extra soy demand to the US.  Many others are questioning this commitment and do not think that this translate into guaranteed increased demand.  Therefore similar to corn, soybeans also have the potential to drift lower throughout the winter into the spring.  Market volatility is very low at this time, indicating that there is not much concern about supply.  Once again, poor South American weather will be needed to bring volatility into the market and their growing season will be key to price movements.  Recent reports show that the Brazilian soy plantings are somewhere in the range of 60% complete, which is slightly below last year’s planting pace.  US soy harvest seems to be slightly below the average 5 year pace, however the majority of the harvest is complete.