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Under the Agridome
Philip Shaw 7/03 2:21 PM
The weather has turned hot and dry in southwestern Ontario with heat advisories issued by Environment Canada. It reminds me of the days hoeing beans as a youngster. The days were hot and the weed population ever so plentiful, it seemed like such a hopeless endeavour. It's a world of difference in 2020, where I can ride an air-conditioned tractor all day and attack those weeds with the newest herbicides.
Needless to say, even though that is the case, I passed a singular farmer the other day in his field marching through with a hoe. With herbicide resistance on the rise, who knows what he'd be hoeing.
He'll be hoeing in some hot weather. According to Environment Canada, temperatures in the low- to mid-30-degrees Celsius range are expected over the next 10 days.
It's being called a dry run for a hot, sticky and humid summer. It will have obvious effects on crops and farmer's psyche as corn ropes on the sand hills. By the end of the week, parts of southwestern Ontario will be hurting for rain. Other areas East into Quebec have been even dryer through Canada Day. It'll be over on the first rain, but sometimes it can be so frustrating getting there.
Amid the sunbeams, USDA released its long-awaited acreage and stocks report on June 30. The June 30 report is always a big one, where the United States government substantiates its acreage forecasts. Having predicted 97 million acres of corn last March 31, I think everybody with a stick in the market was waiting to see more up-to-date numbers. With COVID-19 in the background and with the malaise in corn prices, many observers were expecting a big shift away from corn come June 30.
What we got was a bit of an earthquake. Nobody was expecting the USDA to cut U.S. corn production back 5 million acres to 92 million. I had expected 95 million, just because of the American farmer's love affair with growing corn. This lower corn number was below trade expectations but 3% more corn acres than last year. So, it's a bit of a mixed bag, everybody was on one side of a bearish boat before the USDA report, and that turned out a bit much. American farmers to some extent answered market signals not to grow as much corn as expected. USDA pegged old crop corn stocks as of June 1 at 5.22 million bushels, on the high side of trade estimates. Disappearance of corn between March and May of 2020 was 2.73 billion bushels compared to 3.41 bb last year. It reflects part of the demand destruction thru COVID-19.
USDA pegged soybean acreage to come in at 83.8 million acres, which is 10% above last year's totals. USDA estimated total stocks on June 1st at 1.39 billion bushels, which is down about 3% from last year. Wheat acreage was pegged at 44.3 million acres, which again, was the lowest since 1919. That trend continues as American farmers move to other crops. Interestingly enough, after having about 20 million acres out of production last year through "prevent plant", all of that didn't come back. There is still about a 3.8% acreage gap in principal crops from the numbers in 2018.
December corn futures advanced about 30 cents off the USDA report and 40 cents since June 26. At the same time, soybean futures bounced 40 cents on the news. It was somewhat an emotional reaction as the USDA report was a big surprise on corn and soybean acres, but not such a surprise on bigger old crop stocks. However, with hot weather like we are experiencing in Ontario and Quebec, it added a little fuel to the post USDA bullish move. Any sustained hot and dry weather through this July 4 weekend could surely set the immediate future for grain futures into mid-July.
For Ontario and Quebec grain farmers, this might represent the grain pricing opportunity lost to us in the traditional month of June. With COVID-19 having taken that away, if a price rally is sustained into next week, have those standing price marketing orders ready. Some may hit very fast. As it is, it's always good risk management to have those standing price orders ready. The market waits for nobody and it trades at night while you sleep.
There are myriad market factors yet to play out. In Ontario and Quebec, we need that ethanol demand back, just like we do in the U.S. The Canadian dollar continues to cooperate in the 73-cent U.S. level. Weather this month in the U.S. is critical for corn pollination. Rain in August will set up U.S. soybeans. I'll be combining my wheat in two weeks. Maybe that's the day it will start raining. Who knows?
The USDA shook the market up last week. Now it's up to July weather to set the rest of the stage. The challenge for farmers is to be ready. Hope is not a marketing plan but looking in the rear-view mirror isn't either. The next few weeks could reshape our whole grain pricing environment.
Thank you for your all your correspondence.
Regular Mail: Philip Shaw, 29552 St George St, Dresden, Ontario N0P 1M0
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