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This week we continue to discuss record exports at harvest, review the last harvest progress numbers for 2020 and weather as well as an update on South American crop production and weather.
Click on the commodity below to view the video. |
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Grains were little changed over the past week. Active planting progress was offset by the positive influence of stronger outside markets, which are responding to a likely improvement in the devastating affects of the virus.
88 percent of US corn is planted and 65 percent of their soybeans are in the ground. Normally they are at 82 and 55 percent now. The Northern Plains are the only area behind, and many acres there could go into the prevent plant program.
Large speculators are aggressively selling corn futures again, and hold their second largest short position ever. The only time they were more bearish was last spring. Then planting got delayed, and they covered, causing a 5 week price rise of $1.28. This is unlikely this year.
China is buying more soybeans and record amounts of pork. They are building food reserves, and why wouldn’t they, with prices near their lowest levels in 10-15 years. It seems to me that Trump standing up to China has benefited them more than the US has gained.
Ontario planting progress has been under the best conditions in many years. Farmers sure appreciate planting into dryer soil conditions. With the recent heat, much of the corn is emerging. Most of the soybeans will likely be planted by the end of May.
The weather has allowed the Ontario winter wheat crop to move along quickly, with very few stresses. Yields in areas I travel (which isn’t far though) look to have above average yield potential. Wheat prices have dropped lately, but a fair bit of wheat was contracted at better prices.
The Canadian dollar fell hard in March, but has rallied 4.2 cents since the low on March 16. This is not what Ontario needs right now. Basis levels on crops and livestock are taking a hit, and with Chicago prices also in the tank, farm income will suffer.
Outside markets have been firm. Crude oil keeps rallying, as demand is slowly picking up. Stock markets have been amazingly strong considering the damage that has been done to the economy. The Nasdaq in the US, which is weighted towards technology, is the leader.
All the liquidity that governments around the world are putting into the financial system has to go somewhere. The US is still considered the “safe haven”, so much of that is flowing to US stocks.
It is estimated that 85 percent of the wealth in the US stock market is held by 10 percent of the population. This trend has been growing for years, and the pandemic has accelerated it drastically. Somehow it doesn’t seem fair when so many people are hurting right now. |
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Grain prices remained lifeless over the past week. Prices are respecting the long term chart support they are sitting at, which unfortunately is near 10 year lows.
Trump today gave details on the $19 billion farm program, with $16 billion of that in direct payments to their farmers because of the low prices. It is very unfair that our government basically only gives lip service to our farmers, especially grain farmers.
Farm income in Ontario and Canada will take one it’s largest drops ever in 2020. The playing field is very unlevel with our American competitors. Farm groups are trying their best, but sadly it’s all falling on deaf ears.
This, despite the importance of agriculture to everyone and the economy. I suppose there’s just not enough votes in the farming community for the Liberal government to care.
Frank Backx. |
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Grain prices were mixed over the past week, as they seem to have found an equilibrium. US weather will be the driving force over the next 4 or 5 months.
Meanwhile, farmer’s cost of production has increased markedly over the past 10 years. Higher yields have contributed to this divergence, and this is a testament to how efficient farmers have become.
Frank Backx |
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US farmers are proving again that with all their equipment and some decent planting weather, they can plant a lot of crop in a short while.
Frank Backx
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Demand destruction dominated the headlines in ag markets again. The ethanol story has been well documented, as the crude oil collapse has caused ethanol production to be unprofitable.
Frank Backx |
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Scary times! The fallout from the Covid virus is wreaking havoc on the world. The tragedy of all the deaths is obviously the worst affect. However, preventing the spread is having more serious ramifications than anyone could have imagined.
The most severe market example this past week was the dramatic, unprecedented collapse in crude oil prices. Prices in the nearby May futures contract fell to a MINUS $37.63 per barrel. The collapse in energy demand meant there was nowhere to go with oil.
Meanwhile there are still ocean liners looking for a place to unload and it costs money to store it. That’s why the price went negative. The wealth destruction in the energy sector is huge. This, unfortunately, could be a precedent for other markets as well.
Agriculture, too, has taken a big hit. Livestock producers are having trouble marketing their product as packing houses are shutting down. That means producer prices are very weak and many animals will likely need to be culled.
Meanwhile, retail meat prices could easily spike higher. If less animals are being processed, shortages may develop. Longer term, it could increase the demand for plant based protein if prices get too high.
Grain prices are suffering also. Less livestock, as farmers cut back their herds, means less feed demand. Corn for ethanol demand is collapsing, as refineries close down or cut back. Old crop carry outs in grains are going up rapidly.
Corn has been the worst performer. On April 21, nearby corn futures hit $3.01/bu, exactly tying the low hit in August 2016. The last time corn traded under $3.00 was in 2009. It’s getting hard to pencil out a profit at current prices.
Trump must realize the severity of the situation on their farms, as he has pledged another $19 billion for agriculture. $3 billion will be to buy food for food banks etc., while $16 billion will be direct payments to their farmers.
He also gave their farmers $15 billion in 2019 to make up for the market losses caused by his trade dispute with China. Fully one third of US farm income came from government handouts last year.
The need is much greater now. Canadian farmers are dealing with the same markets as their American counterparts. Agriculture isn’t even on the radar for our government. They’re dispersing money to others who need it, so why not agriculture?
I’m sure it’s partly that farmers make up such a small portion of the population. However, they are amongst the most important people in our society. It may also be that it is such a diverse industry, with different interests, but they are all hurting right now.
Our government needs to step up to the plate and at least level the playing field somewhat as farmers head to their fields to plant the next crop.
Frank Backx
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Deflation continued in ag markets over the past week. Fallout from the coronavirus pandemic dominates the headlines and is the main factor driving price in most markets.
The effect on the economy has been huge. Unemployment has shot through the roof, as many non-essential businesses stay closed. Government payouts to individuals and businesses are unprecedented.
Debt is increasing everywhere, especially at the government level. Individuals feel poorer, especially the newly unemployed ones. Businesses are obviously suffering as well. There is no doubt the fiscal stimulus is required.
Stock markets are good predictors of what the economy will do down the road. World markets, including the TSX, have recovered a good portion of the losses incurred since February, when the pandemic started.
Many jurisdictions are thinking of easing up on the current restrictions. Even if they do, it will take a long time for the world to be back to where it was before this all started. Some adjustments people make may turn out to be permanent.
Grain fundamentals were updated by USDA on April 9. There were no big surprises in the report. Corn for ethanol was lowered 375 mln bu., but this was expected. Feed usage was bumped up 150 mln bu., but the carryout (CO)was still was increased 200 mln bu to 2.092 bln.
The soybean CO was raised 55 mln bu to 480 mln. on a drop in expected exports. The wheat CO was raised a minor 30 mln bu to 970 mln, as it’s staying right around the 1 bln bu., where it’s been for years now.
Brazil’s soybean crop was dropped 1.5 mln mt., while Argentina’s was dropped 2 mln mt. However the world soybean CO will still be over 100 mln mt., so no shortages are imminent. Brazil’s corn crop needs a drink. Their currency remains weak.
Livestock prices fell further into the abyss, especially hogs. Producer prices are weak, as many processors in North America have cut back or shut down due to CoVid-19. Hopefully they will reopen soon. This is an essential service, for sure.
It is surprising to me that the 50 percent increase in the carbon tax wasn’t postponed in view of what is going on. Firstly it is a regressive tax, as poorer people feel the impact more. So while the federal government is paying out huge, it is taxing more with the other hand.
Agriculture is a huge user of energy and this tax will hurt farmers. It is the last thing producers need now with the very low prices in all ag markets. Meanwhile ag is the largest contributor to reducing our carbon footprint, but gets no credit for that.
Frank Backx.
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Grains were weaker again over the past week, but with reduced volatility. This is likely because prices are near long term support on the charts, causing short sellers to be hesitant to push the short side any further.
2020 hasn’t been good to agriculture so far. Prices hit their highs in early January and prices have been in a downtrend since. So far this year, corn, soybean and wheat futures are down 63, 89 and 26 cents from their January highs.
Corn is making new contract lows in the daily charts, but holding above the critical support at $3.20. Corn has been the worst relative performer this year by far. Losses accelerated last month when crude oil prices collapsed.
Wheat has been the best performer, especially Chicago’s soft red wheat futures. They trade at an unusual $.75 premium to Kansas hard red wheat and a $.25 premium to Minneapolis’s hard red spring wheat futures.
US total wheat acres are the lowest in over 100 years, but the US isn’t nearly as large a world player in wheat compared to corn and soybeans. Recent strength in wheat is due to Russia, the world’s largest exporter, curtailing exports for the next 3 months.
While the drop in grain prices so far in 2020 isn’t what farmers need or want, it pales compared to the destruction in livestock prices. Hogs topped out in January at 70.20, and on April 6th, traded to 37.50, in the April contract, the lowest level since 2003.
Cattle started the year at $128/cwt and recently traded at under 84. That is their lowest futures price since 2009. Fortunately, the Canadian dollar has been weak, helping local prices somewhat. However, current local prices are still in the tank.
It is unfortunate, and even unfair, that retail prices don’t reflect any of this. Even gas prices have tumbled with the drop in crude prices. Why aren’t retail meat prices reflecting the price on the producer side?
Outside markets were mostly higher. Gold traded over $1700 for the first time since Dec. 2012. Toronto stocks shot up over 13 percent over the past week, as more people believe the world is getting closer to the peak of the coronavirus. Let’s hope they are right. |
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Trying to stop the spread of Covid-19 is having serious ramifications. Most non-essential businesses are shut down, and economies around the world are receding as individuals hunker down. It has had a huge affect on markets as well. In the week ending March 21, 3.2 million Americans filed for unemployment. That is 4 times the previous record. Some think their unemployment rate could top 30 percent in the second quarter of the year. The biggest concern is how long this might last.
Another fallout from the pandemic is the affect on government deficits, as they attempt to inject liquidity into the system. The US passed a $2 trillion fiscal stimulus bill, while Canada has pledged $82 billion. Both promised more, if necessary.
Government deficits have accelerated since the 2008 recession, and will explode with all the new spending. The Parliamentary Budget Office suggested the Canadian deficit could hit $112 billion in 2020. Our accumulated debt sits at $713 billion, so that would be an increase of over 15 percent!
The affect on agriculture has been more muted compared to many other industries such as energy, tourism, airlines and manufacturing. I suppose that’s because everyone still needs to eat to survive. However, overall, Covid-19 is likely more of a negative influence than a positive one.
The USDA issued their prospective planting and March 1 stocks reports today. Corn stocks were 172 mln bu less than expected. However corn acres to be planted this spring were put at 1.355 mln more than traders thought, which would easily offset the smaller stocks.
Soybean and wheat stocks were guessed accurately. Wheat acres were 327,000 below expectations while soybeans were 1.355 mln less. However, the survey was done in late Feb and early March and much has changed since then.
The biggest change was the sudden and drastic lack of profitability in producing ethanol. This is obviously tied to the collapse in energy prices. Many plants are shutting down, and corn futures and basis are under pressure.
In South America, it has become dry in many key areas. This would affect their double crop corn more than their soybeans. Brazil’s currency, the real, fell another 4 percent this week to its lowest level ever. This makes them more competitive internationally.
There has been much deserved praise for those on the front lines dealing with current situation. This includes health care workers, truckers etc. Farmers too are key people in the struggle to get the world back to normal.
As I mentioned earlier, everyone still needs to eat every day.
Frank Backx |
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Hensall Co-op 94 January 15, 2021 |
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Energy Division 3 December 10, 2020 |
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Marketing & Communications 1 October 23, 2020 |
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Crop Services 4 October 6, 2020 |
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Membership Office 1 July 3, 2020 |