Grain prices eased further over the past week for a few reasons. The weather in South America is cooperating, so analysts are raising their yield estimates. The coronavirus is turning into a negative for many markets, including commodities in general.


Brazil needs regular rains because of their courser soils, especially in the main growing state of Mato Grosso. That has been happening lately, and these rains are coming at a critical time, as they are in full flowering and pod fill stages now.


The coronavirus is spreading more rapidly than many thought it would, especially in China where it originated.  The world is a global community, so the spread to other countries is hard to contain. It adds uncertainty, which usually causes markets to retreat.


Soybeans prices have been the weakest through January. Despite the signing of Phase 1 of the trade deal, China has not stepped up their soybean imports from the US in the past few weeks. Traditionally, they buy most of their beans from South America after their harvest, which is getting closer.


Soybeans are down 70 cents since the start of the month. Corn has dropped 10 cents/bu in Jan, while wheat has gained 13 cents. The divergence in crop prices is a bit unusual. Hopefully the wheat strength will support the other crops going forward.


Even though soybean export sales have been disappointing lately, actual exports this crop year are up 23 percent from a year ago. However, last year’s sales were weak because of the trade war. Corn exports since Sept. 1 are down 53 percent compared to a year ago.


The spreads (difference between the futures months prices) are tightening in corn. This is usually positive for price direction. Corn basis is also stronger than normal for this time of year. Both of these conditions are an indicator of strong demand for the cash product.


There is major deflation in energy futures. Crude oil hit 65.40/barrel on Jan 8, but fell to 52.13 by Jan 27, for a nearly 19 percent drop. Natural gas is down 37 percent since Nov. and is near a 4-year low and not far from a 20 year low.


The low energy prices will keep inflation in check, which should prevent interest rates from rising. It is also a positive for economic growth, as people and companies have more dollars left over to spend on other things if they spend less on energy.


Frank Backx.

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Grain prices were mixed over the past week. Soybeans are the weakest link, while wheat is showing the most strength.


The biggest “news” was the signing of Phase 1 of the trade deal between the US and China. One would think this should have been most supportive of soybeans, as that is by far the largest portion of China’s ag imports.


Perhaps it is the old theory of “buy the rumour, sell the fact”, as this has been talked about for over a year. Some analysts were also skeptical about some of the details that were released.


Apparently, China will buy an additional $32 billion in ag products over the next 2 years above what they purchased in 2017. That’s a lot of stuff! However, China also said imports would be based on need and market conditions.


Some wonder how much teeth the new agreement has. What if China doesn’t buy the quantities specified? China already has a bit of a reputation for not honouring contracts. Perhaps that’s why futures dropped since the signing?


China traditionally hasn’t bought a lot of US corn and wheat, but to reach the dollar figures in the agreement, they will need to buy a lot of those crops also. This should be supportive of those markets.


Wheat is also firm due to production problems in many of the exporting countries. There were rumours Russia was pulling itself out of the export markets, as the cupboard has supposedly run bare there. France, the largest producer in the EU, planted the fewest acres of winter wheat in 19 years due to a wet fall.


The US government announced the final one-third of the $16 billion in subsidies announced when the trade war started will still be paid out. It seems the US cares more for their farmers than any governments do on this side of the border.


China’s pig herd fell 27.5 percent in 2019 from 2018 to 310 million. As a comparison, there are about 75 million hogs in the US. China did expand its poultry flocks by over 10 percent to make up for some of the meat shortfalls.


Chinese pork imports from the US will remain strong and help them get to the trade deal targets. China continues to buy a lot of pork from Europe also. All this extra demand from China should support world pork prices through 2020.


Frank Backx

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Grain prices were mixed again over the past week. Wheat was by far the strongest on technical buying. The continuation charts are at their best level since August 2018, and not far from its best level in 4 1/2 years, when futures last traded at $6.00


The highly anticipated USDA report released Jan 10 turned out to be a dud. While the numbers were mostly bearish, prices refused to break down. This is usually a positive for price when that happens.


Grain stocks at December 1 were a bit of a positive surprise, and all less than a year ago at the same time. Corn is down 548 mln bu., compared to Dec. 1, 2018 and 83 mln less than traders thought.


Soybean stocks are down 494 mln bui compared to a year ago, but at 3.252 bln bu, is more than expected. Wheat stocks at Dec. 1 were as expected at 965 mln bu, down 115 from a year ago.


US yield estimates were bearish. Corn was raised 1 bu/ac from the Dec. report to 168 bu. Traders expected 166. Soybeans were pegged at 47.4 bu, up .5 from Dec. and .9 from pre-report guesses.


Final carryout guesses for the 2019/20 crop were higher than expectations because of the higher yields, but were tempered by the smaller Dec. 1 stocks. The bottom line is that carry outs are falling in all crops, which is a positive.


US winter wheat seedings were put at 30.80 mln., the lowest in over 100 years. However, soft red wheat acres were 550,000 more than traders thought. Since Ont mainly grows soft red, the report isn’t as  friendly to our soft red basis as it could have been.


Tomorrow is finally the signing of Phase 1 of the US/China trade agreement. This is an anticipated event, as tariffs and negotiations have been going on since March, 2018, so markets are not responding to the actual signing.


Hopefully some specific details will come out shortly. There is no doubt China will import more US ag products, but that too has been widely discussed. Hopefully China will adhere to whatever they sign.


Agriculture has been hurt by Trump’s tariffs likely more than any other industry. Hopefully the trade deal will help the US get back some of the market share that they lost during the process.


China buying more US ag products could cause the US to lose some of the markets they have with all their other customers, who may now have to go elsewhere for their needs. World demand is relatively static, so the trade deal is more of a shift in demand than new demand.


Frank Backx

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Grains were mixed compared to 3 weeks ago and all markets remain within their recent ranges. Corn has become the weakest performer lately, however, on demand considerations.


Thirteen US ethanol plants have shut down in the past year due to poor margins. US corn exports remain slow and are down 53 percent from last year at this time. The USDA may reduce their export estimate of 1.85 bln bu. in their January 10 report.


This could be offset somewhat by the signing of Phase 1 of the China trade deal on January 15. So far, few details have been released. Trump is demanding more ag imports by China, which would include more corn and ethanol.


The USDA report in January is one of the most important every year. Final production numbers for the 2019 crop will be released, as well as grain stocks as of December 1, and winter wheat acres planted. Big moves often accompany this report.


Fund buying has been the main reason for the price improvement since early December. This was almost all short covering. Their buying is giving producers a better opportunity to lock in some half-decent prices for both old and new crop.


The biggest news this past week was the killing of a key military leader in Iran by US forces. Grains did not react.  Some think it is negative for grains, as the Mideast has become a source of demand, especially for wheat. They may shun US supplies now.


Another effect the killing could have is to strengthen the US dollar. As uncertainty increases, some dollars will seek the safe haven of that currency. This tends to have a negative effect on commodities in general.


It hasn’t hindered gold or crude oil prices, however. Gold is also a safe haven and hit a new seven-year high. Crude oil also spiked to its best level since last May. Stock markets eased only marginally.


Livestock markets were flat over the past week. US pork exports to China in November set a new high, 30 percent higher than the previous monthly record hit last July. One would think the extra demand should have been more price friendly.


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Grain prices gained marginally over the course of 2019. The markets were relatively flat most of the year. Corn had a $1.29 range, while soybeans fluctuated 1.65 from low to high and wheat had a $1.42 range.


Almost the entire range was made starting in mid-May. However, the rally was short-lived, as it topped out by mid-June, and prices retreated back close to the May lows again, before a slight recovery in December.


The rally was because of a backward spring, especially in the eastern corn belt, including Ontario. Planting of corn and soybeans was seriously delayed because of the wet conditions that persisted well into June.


Not a lot of grain was sold in Ontario during the rally for good reason. Many farmers had very little planted when the rally topped out in mid-June. A lot of what was planted was in less than ideal conditions.


Then some areas missed key rains in July and August. Yields in those areas ended well below last year and normal. Stats Canada said the Ont corn yield fell 4.6 percent to 158.4 bu/ac., while soybeans fell 7.3 bu/ac to 44.1. Higher acres were reported for both crops.


In the US, the corn yield was put at 167 bu/ac, down 9.4 from last year. Their soybean yield was put at 46.9 bu., compared to 50.6 the previous year. This is allowing carry outs to fall, especially in soybeans, but the absolute numbers remain on the high side.

USDA will report final crop numbers on Jan 10. Many expect a friendly report, with a lot of corn still out in fields in the Northern Plains. However, trying to second guess USDA can be a costly exercise.


Ontario basis levels have been higher than normal. This is because our prices follow the basis in the eastern US grain belt. The basis there is much higher than in the western part of their main growing areas. The Canadian dollar only had a 3 cent range in 2019 and finished at its high for the year.


The other big issue in 2019 was the trade negotiations between the US and China. Some progress was made in December, which was probably the main reason prices ended the year well off their lows. Weather in South America over the next 2 months will dictate price direction.


Most other commodities also improved in 2019. Crude oil was the star performer rising 35 percent, while gold gained 19 percent. Livestock markets firmed, as Asia suffered from African Swine Fever. Longer term interest rates fell marginally.


2019 was a trying year for many in agriculture. However, it must be kept in perspective. 2019 is also the end of a decade. Ten years ago the world was just beginning to recover from the economic meltdown. Investors have been rewarded with the TSX up another 23 percent this year.


Agriculture has also been blessed over the past decade. Record yields were hit many times. Prices could have perhaps been better, but overall were decent with the higher yields. Farmland appreciated dramatically over the past 10 years, so everyone is much better off.


I wish my readers all the best for the New Year and predict 2020 will be better than 2019 was!


Frank Backx

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Prices moved nicely higher again this past week. Soybeans are up $.60 since the start of Dec. Most of the gains came after positive developments in the trade dispute between the US and China.


While phase 1 of the deal has yet to be signed, it appears it will be shortly. This averted the increased tariffs Trump threatened China with that would have started Dec 15. China realizes Trump is adamant in addressing the huge trade imbalance between the 2 countries.


Apparently, China has agreed to buy $40 billion of US ag products in each of the next 2 years. The most China has ever bought from the US in 1 year was $29 bln in 2013. The 40 billion would be 16 billion more than what they bought this year.


Soybeans will be a primary beneficiary of the increased trade, as that is by far China’s largest ag import. Pork imports will also increase, but this is also out of necessity due to their African Swine Fever.


US corn, ethanol and wheat exports will also likely increase if China hits the $40 billion target. That is likely why those markets also rallied since the trade news came out last week.


Also, helping markets are large speculator short covering. They have been sellers of soybeans for 6 weeks in a row, and sold 13,000 contracts in the latest reported week, to be short 112,000 contracts now. This is adding some fuel to the fire.


Export inspections are released every Monday and quantify what is physically exported. So far this marketing year, which started Sept 1, the US has exported 684 million bushels soybeans, up 22.8 percent from last year’s disappointing 557 million.


Corn is a different story, however. Since Sept 1, the US has only exported 384 million bushels.  Last year at this time it was 630 million. US prices were uncompetitive with Brazil and Ukraine, but that has now changed so exports should get back on track.


As expected, the new government in Argentina raised the export taxes on crops by 8%, as the country is in dire economic straits. The tax is now 33% on soybeans and 15% on corn and wheat. With a collapsing currency, farmers there will be tight holders.


Weather in South America has turned wetter, increasing their potential crop size. That makes this week’s futures gains that much more impressive. But, as always, the market gives but can also easily take away.


New crop Ontario prices for corn soybeans and wheat are near the magic $5.00, 12.00 and 7.00 round numbers. These aren’t get rich quick prices, but perhaps this isn’t a bad place to begin to reduce market risk on a small portion of the crop?


I wish my readers a blessed Christmas and a healthy and prosperous New Year. Mark my words, 2020 will be a better year than 2019!


Frank Backx



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Soybeans were the star performer again over the past week. Exports have averaged 47 million bushels per week over the past 4 weeks, which is double last year in Nov., and the highest total for that month in 25 years. China was the big buyer.


Perhaps the buying was a conciliatory goodwill gesture by China, but it could also be due to the fact supplies in Brazil have been depleted over the past 9 months, when China shunned US supplies. Regardless, demand has been strong lately.


Meanwhile, China keeps shunning Canada. Our total exports to them fell 19.3%  in Oct., to the lowest level in 5 years. In 2018, more than one-third of our exports went to China; now it’s less than 11%. Our soybean and canola exports were a huge contributor to the decline.


There are pockets in South America that are dry, and the forecasts are hinting that could intensify over the next two weeks. The fundamental focus has shifted to that part of the world. A serious drought there would propel soybean (and other grains) to higher levels.


Today USDA updated US and world numbers in their monthly WASDE report. As usual in the Dec report, there were very few changes. Markets reacted accordingly and yawned at the “news”.


The corn market has been a disappointment, especially considering soybeans are up $.35 so far in Dec. There are still a billion bushels in the US not harvested, and the weather is not co-operating. South Africa and Mexico are both experiencing droughts, which should help.


Stats Canada put the Ontario corn yield at 158.4, down 4.6% from last year. The soybean yield is pegged at 44.1 bu/ac, down 7.3 bu from last year. Despite higher acres for both, production will be down because of the yields.


The Canadian dollar is very resilient, despite terrible fundamentals. We lost 71,000 jobs in Nov., the largest drop since the economic meltdown in 2009. Meanwhile, job creation in the US was phenomenal. Normally this news would drop our dollar.


Our relationship with our largest trading partner surely didn’t improve after the conversation Trudeau had with some world leaders at the NATO conference, that went viral on social media. It appears the new USMCA trade agreement will still be signed today.

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Soybeans were the weak link in the grain complex again last week. South American weather has been OK, and forecasts call for periodic rains over the next two weeks. Trump announced there will likely not be any signing of a trade deal before the next US election in October 2020.


This could be because of President Trump’s support of the demonstrators in Hong Kong; especially after the recent landslide win by the pro-democracy side. This has obviously enraged the Chinese government.


This gave speculators the courage to sell a record number of soybean contracts in the latest week. They sold 62,000 contracts or 310 million bushels, putting them net short 43,000 contracts now. Their record short position is 169,000, however.


The record low real and large crop will help Brazil export a record 41 million metric tonnes of corn in 2019. Last year they exported only 22.8 mln mt. However, Rabobank predicts that exports in 2020 will fall to 30 mln mt, as they use more domestically for ethanol and livestock.


US corn is 89 percent harvested, the second slowest pace in the past 20 years. North Dakota is only at 36 percent. Michigan and Wisconsin are only at 66 percent. The slow pace is supporting basis, but not doing much for Chicago.


Ontario is also seriously behind, with little to no progress in the past two weeks due to weather. Most of the corn in fields is high in moisture, and not drying down, due to the wet conditions. Test weight is also an issue, and price discounts are widespread.


Trump has messed up grain markets with his trade policies. However, he hasn’t thrown their farmers completely under the bus. One-third of US farm income in 2019 will come from government sources and subsidized insurance payments.


The $22.4 billion in government aid in 2019 is up 64 percent from 2018, and the highest since 2005. This is helping farmers there cope with the low price, high-cost environment they are operating in.


Unfortunately, Canadian farmers are also caught in the same squeeze. Yet agriculture isn’t on the radar of any of our political parties, federally or provincially, especially in terms of any financial help. The playing field just keeps getting more uneven.


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Prices were lower again for corn and soybeans, over the past week, while wheat prices were firm. Concrete news is still lacking, so prices remain within recent ranges. Corn and soybeans are both about 35 cents below their October highs, while wheat challenged its Oct high.


Rumors that the China/US trade deal wouldn’t be signed this calendar year didn’t help sentiment. Market participants are getting tired of all the rhetoric, without any real results. This is likely why soybean prices are showing the most weakness.


Corn harvest as of Nov 24 was 84 percent complete, below the normal of 96 percent for that date. That means there are still over 2 billion bushels out in fields. North Dakota is by far the furthest behind, with only 30 percent in the bin.


Many of those unfortunate farmers got hit with a frost before the corn was mature. Their moisture levels are very high, and test weights are very low. Heavy discounts are the result, with some reports of farmers receiving only $2.00/bu.US after drying.


Ontario is also experiencing some of the same in many areas, although not nearly to the extent of the US Northern Plains farmers. Harvest progress remains slow in many areas, as fields are wet, and moisture levels in both corn and soybeans remain too high.


On the demand side, corn exports remain slow. Export sales are at their lowest level since 2012, when prices hit record highs. Demand for corn for ethanol will likely end up 150 miln bu. less than the 5.425 bln bu. USDA is estimating.


Soybean exports are a different story, however. Last week, the US exported 1.943 mln mt of soybeans, the largest weekly total in 2 years. Of that, 1.35 mln mt, or nearly 70 percent went to China. The US is currently the cheapest source of soys.

Chicago Dec. soft red wheat closed at 5.30 today, not far from its Oct high close of 5.32. Meanwhile, Kansas hard red wheat closed at 4.33. The 97 cent discount is the highest in 12 years. Chicago wheat is also at a 26 cent premium to Minneapolis spring wheat futures. This is very rare.


Current prices for the soft red wheat Ontario farmers planted this fall are $6.50 per bushel. With much of the crop looking decent as we head into winter, taking some risk off the table on any further rally may be prudent.


If and when the spreads between the different classes of wheat realign to more normal levels, the greatest pressure would likely be on soft red wheat prices.


Frank Backx

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Grain prices remain in the doldrums, with prices losing more ground in the past week. Corn is now near its worst level in Chicago in 2 months, while soybeans trade at a 1 ½ month low. This isn’t unusual seasonally, as the US nears the end of harvest.


Corn is now 76 percent harvested, up 10 percent in the past week, but still behind the average pace of 92 percent. Soybeans are 91 percent in bins, up 6 from last week. Usually, by now 95 percent are off.


The Ontario corn and soybean harvests are further behind than that in most of the US. Corn is drying down at a slow rate, which isn’t unusual for this time of year. The recent wet weather and damp forecasts obviously won’t help that situation either.


China has resumed poultry imports again from the US. The week before, they announced they were going to increase meat imports from Canada also. They need more meat protein as they deal with the African Swine Fever that has decimated their hog numbers.


Despite these announcements, US livestock futures weakened. Cheap grain prices throughout the world are giving incentives for producers to increase their herds. Eventually, this will increase feed demand, but it is a slow process.


South America is expected to see regular rainfall over the next week or two. This is also contributing to the lower prices in Chicago. Some areas in the south are dry. December and January weather will determine their crop sizes.


US exports of grain have been poor lately, due to the ongoing trade war and stiff competition from other sellers, such as Russia. However, international prices are firming, which should allow the US to get back some of the customers they lost.


Outside markets also remain quiet for the most part. US stocks again traded at new record highs.  There seems to be some disconnect between main street and Wall Street. Other than employment, most economic indicators aren’t firing on all cylinders.


With interest rates still near record lows, investors keep putting more dollars into stock markets. The major US stock indices are up over 20 percent again in 2019. Because the trend has been up since the recession low in 2009, the rally is long in the tooth by historical standards.


As in all markets, though, the trend is your friend.


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January 28, 2020
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