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Under the Agridome
Philip Shaw 1/15 6:28 AM

January weather has been benign. Mid-January is good for me as it always represents another trip around the sun. Its kind of spooky, a January without snow or freezing temperatures, but that's what I got. I had a non-farmer exclaim to me the other day about farmers preferring a hard winter. I said, yes, there is something to be said for that, as our cold Canadian winters often have the effect of reducing pests and redeeming soil structure. It might still happen, knock on wood. January represents many things, but frigid temperatures is usually one of them.

We all know what the other mid-January big deal is. Aside from the cold, we're always anticipating the January USDA report, the data dump, which is the Stanley Cup Finals, Super Bowl, Grey Cup and Vanier Cup put together. Despite the grain economy changing over time, oftentimes the January USDA report can be explosive. This was one of those years.

On Jan. 12, USDA through a bomb into the grain market. The USDA lowered U.S. domestic yield by 3.8 bushels per acre (bpa) to 172 bpa, dropping production down to 14.182 billion bushels (bb). USDA also lowered old-crop carryover by 76 million bushels (mb), and this combined with lower yields dropped the 2020-21 corn crop by 400 mb. It all happened by the stroke of a pen. Corn usage was cut back a bit, but corn skyrocketed on the move limit up.

Soybeans followed, partially because they seem to go only in one direction.

Well, not really, but you get the picture. Everyone was focused on soybeans ending stocks, which came in at 140 mb. This was a 35-mb decline from the December estimate. USDA also reduced the yield a half bushel an acre to 50.2 bp. USDA also raised crush and soybean exports. USDA kept Brazil's production at 133 million metric tons (MMT) and Argentina beans at 48 MMT. Soybeans took off with corn, although I consider corn the bigger surprise.

Wheat production in the U.S. remained the same as the December report, but usage was increased and ending stocks dropped below expectations. As I've said before, you've got to look at supply and demand balance sheets within the specific wheat classes. In Ontario, we grow mostly soft red winter wheat. Last week that could be contract here for over $7.50 a bushel (bu). If the price of corn catches more fire, you can expect more wheat to go into feed rations.

So here we are. I'm presenting on Zoom to eastern Ontario farmers tonight. As it stands now, nearby corn futures are sitting at $5.37 and soybeans at $14.30. About 10 months ago, we were at $3.68 for corn and $8.92 for soybeans. If you saw this coming 10 months ago, you are better than me. Yes, it's been a weird year, but it seems now a days, the attitude is being bullish on bullishness.

How did we get here? Well, it's a long story, but it has quite a few facets. One analyst said recently on Twitter that last spring we planted into "peak fear." At the time, COVID-19 was like a monster. In retrospect, that monster crushed our optimism, and it may have shown up in the field. USDA just got done telling us the crop wasn't what we thought it was. At the same time, this realization came mostly in the last month. Over time, demand increased from China and elsewhere. The U.S. dollar kept falling. South American weather got dry with strikes in Argentina. Incrementally prices just kept increasing, shattering mostly everybody's paradigm. The lesson to be learned is grain prices are not always rangebound. Remember the discussion earlier last year if corn futures would break through $4.25 or even $4.50? It seems so Thursday.

Was it, is it a perfect storm for grain prices? Well, as of now, grain futures are still headed skyward, but breaks in the cash market will likely come. Arbitrage can be a funny thing. Yes, but how about if the Brazilian crop gets smaller, followed by a rough 2021 growing season? How about if the North American growing season is the same as 2020? You know the drill, in these COVID-19 times, we yearn for normalcy and it's the same in the grain market. At a certain point, we'll get back to normal where there is more predictability, like pricing grain in June.

Needless to say, new-crop pricing now is the stuff dreams were made of 8 months ago.

A trader on the floor of the CME once told me, to sustain a bull market, you have to feed the bull every day. That is so true. Who knew, the 2020-21 bull liked to be spoon fed. You'd think eventually he'll get full. But for now, being bullish on bullishness is a thing.


Thank you for your all your correspondence.

Email: philip@philipshaw.ca

Website: www.philipshaw.ca

Twitter: @Agridome

Regular Mail: Philip Shaw, 29552 St George St, Dresden, Ontario, Canada N0P 1M0

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