There was huge divergence in grain prices over the past week, with corn being the weakest link. This is because corn demand became questionable due to it’s tie to the collapsing energy prices. Almost 40 percent of US corn goes to make ethanol.

Ethanol prices are trading under $.90/gallon, the lowest ever. Suddenly it is not an economical additive to gasoline, with lowest gas prices in 21 years. Production plants are shutting down to stop the bleeding. Corn basis has also dropped sharply.

Meanwhile, soybeans and wheat had strong gains for the week. Seasonally, grains rally in March or April almost 7 years out of 10. Also helping these markets was rumors of better exports, especially to China. South America is drying out, so crop estimates there are declining.

Soybean meal was the leader, rising $38.00/ton in the past week. That’s a 12.7 percent gain. Argentina, the world’s largest exporter, is in lockdown due to coronavirus, so is exporting less. Less DDG’s will be produced as ethanol plants shut down.

The soybean/corn ratio has obviously made a major adjustment with the relative moves this week. Because we are getting to the spring planting season in North America, it will likely mean more soybean and less corn acres.

In Ontario, the ratio favors soybean acres even more, as soybeans react to the weaker Canadian dollar much more than corn does. The current ratio delivered to Hensall elevators for new crop is nearly 2.6 to 1, whereas the Chicago futures ratio is only 2.4 to 1.

Most Hensall Identity Preserved (IP) soybeans carry a $3.25/bushel premium. Adding that to the harvest price puts the ratio to 3.3 to 1, and flat prices over $15.00 per bushel. That compares very favorably to our current harvest corn bid of $4.56/bushel.

Grain markets are more volatile, but nothing like the action in stock, bond, energy and metal markets. COVID-19 has drastically changed markets and the world. With volatility comes opportunity.

While the current situation is scary, we will come out of it. Perhaps it can be viewed as a necessary pause in our relentless, more hectic pace, and will give us time to be more reflective and think more about the most important things in our lives.

Frank Backx

This week we highlight new crop Futures price trends for both corn and beans and also look at weather prospects for Brazil and Argentina.

Tune in each week for updates on the market.

Click on the names here to watch the videos from ATI. 

• Corn 
• Beans

Grain prices weakened further, following most other markets to lower ground. The drop in May futures in corn, wheat and soybeans from the early March highs are 42, 90 and 42 cents, respectively. Ouch!

Coronavirus, aka as Covid-19, has caused steep losses in stock markets around the world. There have been numerous days where that market changed 10% from the previous day. Volatility is extreme.

From the highs hit on Feb. 20, the TSX stock index in Toronto has lost one third of its value. The S&P in the US has lost nearly 31%. These are some of the largest drops in history over that short a period.

The world economy will take a severe hit, as governments enact more drastic measures, in an attempt to slow the spread of the pandemic. The million dollar question is how long will it be before things get back to normal.

Most now think it will be months, not weeks. However, in China, where the outbreak started, things are slowly getting back to normal, as their cases have supposedly peaked. That does give us some ray of hope.

The stock markets drop will also be a negative for the economy, as everyone with investments will feel poorer. Partially offsetting that, however, is the huge drop in energy prices and the lower interest rates that we are now experiencing.

The US Federal Reserve dropped their bank rate from one percent to zero, an unprecedented move considering how low rates already were. They are also supplying lots of liquidity to the system by buying $700 billion worth of bonds.

While most of the blame for the lower grain prices can be attributed to the above, their fundamentals are more negative than positive also. Corn exports are down 42 percent from a year ago. China has a miniscule 2 mln bu of US soybeans on the books.

The crude oil collapse is hurting the ethanol industry, and there are fears that many plants will shut down. Prices are record low at under $1.00/US gallon. Meanwhile, most expect US farmers will plant 5 million more acres to their major crops this spring.

The only saving grace for local crop prices is the weak Canadian dollar, which fell another 2.19 cents over the past 7 days. That brings the drop since the beginning of the year to 6.9 cents. Unfortunately, lately, the Chicago drops are larger than the basis gains.

Livestock markets have also collapsed, as no market is immune from the panic selling. Live and feeder cattle futures have lost 28 percent of their value since the beginning of the year. Hog futures have shed 25 percent. Ouch!

Unprecedented times, but it’s always the darkest before the dawn.

Frank Backx

We have seen the impact of the Coronavirus disease (COVID-19) become more acute over the past few days and I wanted to take this opportunity to outline how we are responding to this unprecedented situation. Protecting the health and safety of our employees, members and the community at large is our number one priority as we navigate through this situation. This morning the Executive Committee of Hensall Co-op met with the Emergency Preparedness Team to put certain actions and policies into place in response to the outbreak. We will be using every tool at our disposal to slow the spread of COVID-19 to protect our employees, members and customers while ensuring we don’t disrupt our essential services within the supply chains we currently serve.

Hensall Co-op is a global company working within food companies around the world and our products and services are essential to the supply chains of our local livestock and farming industry. This outbreak is occurring as we approach the spring season for our members and customers. We recognize the need to have employees and services in place to provide our critical services to our members and customers. We firmly believe the precautions we are implementing are prudent without limiting our ability to provide the services we need to.  

The situation is fluid and will remain so, but at this time we have implemented the following measures:

VISITORS TO HENSALL CO-OP LOCATIONS

• Screening stations will be placed at key entrances to our facilities
• Non-essential visitors will not be granted access to Hensall Co-op facilities. If you have are not clear as to whether your business is essential or not, please contact us via phone at 519-262-3002 or 1.800.265.5190 for guidance as we will be continually reviewing the determination of essential and non-essential services

EMPLOYEES AND OUR WORKPLACE

• We are encouraging all employees to implement social distancing and we ask your understanding as we change the way we interact with our customers; for example, we will request a teleconference rather than face-to-face meetings
• We are monitoring travel advisories from Health Canada and a comprehensive business travel ban is in place

MEETINGS AND TRADE SHOWS

• We will be cancelling or postponing all non-essential meetings
• We will not be attending trade shows until further notice

RISK MANAGEMENT

The outbreak has created substantial volatility in all commodity and financial markets. Hensall Co-op has a risk management committee that continues to monitor markets and risks daily and meets weekly. This committee was put in place to ensure our risk management processes are being adhered to and that we are protecting the assets of Hensall Co-op. 

This is an extraordinary situation and demonstrates how quickly our world changes. Rest assured that we are monitoring the situation and we are dedicated to protecting the health and safety of our employees, our members and our industry while protecting the assets of Hensall Co-op and its members.  We will continue to provide updates as the situation changes.

This week we highlight the details of yesterday’s monthly USDA Supply and Demand Report. Additionally, we take a look at the double-crop corn in Brazil and the soybean crop in Argentina.

Click on the names here to watch the videos from ATI. 

• Corn
• Beans

Grain prices were mostly lower over the past two weeks. This had more to do with the outside markets than any change in grain fundamentals.

USDA did update their monthly demand/supply report on March 10. US carry outs were left unchanged, which was expected. They did add 1 mln mt to Brazil and Argentina’s soybean crops, so the world ending stocks did increase more than expected.

The volatility in stocks, bonds and many commodities has become extreme. Much of that is blamed on the coronavirus, which is having a much larger impact on the world economies than many expected it would have.

Quarantines and travel restrictions are growing daily. Some businesses are asking employees to work from home. Supply chains in some industries are being restricted, and shortages are becoming more common.

Stock markets around the world are reacting bigtime. A 5 percent daily change is happening with regularity. The biggest moves lately are to the downside. Since Feb 20, the TSX index in Toronto has shed over 3000 points or 18 percent.

Then on Monday, March 9, crude oil dropped to as low as 27.34 per barrel from its close the previous Friday of 41.28, for one of its largest 1-day drops ever. In early Jan., crude traded at 64.99, so the drop so far this year has been spectacular.

Russia and Saudi Arabia are having a price war, trying to capture a larger portion of the declining energy demand base caused by coronavirus. The deflationary spinoff from the crude oil drop contributed to the weaker grain prices.

Bonds were the main beneficiary of all the turmoil. US 10-year bonds traded to a low of .35 percent. Yes, that’s .35 percent. Central banks panicked and dropped short term rates a full 50 basis points also. Not all is well with the world when rates are this low.

While grains declined, they are holding their own better than many other markets. Perhaps that’s because prices were already near the bottom of their ranges of the past decade. But that similar situation sure didn’t help crude on March 9.

The Canadian dollar fell hard on the crude oil collapse to a 4-year low. Corn basis gained a dime, while soybean basis shot up 25 cents since my last report. Once again, basis is offsetting some of what Chicago does, as our dollar, being a commodity currency, tends to go in the same direction as grain prices.

Flat prices for Ontario growers remain in their sideways trends and actually improved due to the stronger basis Selling rallies using flat prices still makes sense to reduce market risk. A seasonal rally in March or April, just ahead of US planting, happens about 7 years out of 10. 

Frank Backx

Book your 2020 Acres before May 1, 2020 and save $3 per acre. 

Introducing the newest member to our custom application fleet.  Booking acres for summer 2020!!!

Download the pdf information sheet here.

Today we announced a new partnership with Ag Energy Co-operative (AEC) to offer natural gas and electricity to Hensall Co-op members. Hensall Co-op has been an AEC member for over 15 years. We are excited to partner with them now to offer our members competitive energy prices.

Ag Energy Co-operative offers energy strategies and solutions to agricultural producers and processors in Ontario. Economies of scale in purchasing and management services allow the Co-op to offer flexible natural gas and electricity programs.

This initiative demonstrates Hensall Co-op's commitment to providing members with value-added solutions in new ways, across all commodity groups and with new partners.

Members should contact our Energy Department or Ag Energy to see how this program can reduce risk and find opportunities in their natural gas and electricity spend.
 

We are pleased to announce the donation of our Parkhill property to the Municipality of North Middlesex was approved by Council this week. Subject to normal closing conditions, the property at 192 Parkhill Main Street, which was previously our Parkhill store, will be the future home for a combined Fire Station and County of Middlesex Emergency Services (EMS) location. Located adjacent to the existing fire station, the site is very well suited to meet the emergency services needs of the municipality. We are focused on strengthening our rural communities and see this as an innovative way to do just that.