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.


Fundamentals aren’t helping to turn this bear market around. Demand has been lost due to Covid 19, and world carry outs are large by historical standards. Now it will come down to US growing conditions.


As of May 17, 80 percent of US corn was planted. This is a bit ahead of the normal pace of 71 percent for that date. 53 percent of the soybeans were in the ground, compared to 38 usual for that date.


Traders know that earlier planting usually translates to higher yields, so that is holding markets down. However, this past weekend saw heavy rains in the heart of the Midwest, so the planting pace will slow this week.


Traders have also learned that “rain makes grain”. This was reinforced the past 2 years, as wet, late springs failed to dampen yields by very much. It will take sustained dryness to get a supply side rally going.


The demand side is showing some life lately. Crude oil is back over $30.00/barrel after the total collapse in late April. That is still very cheap, but at least the trend is in the right direction. Usage is increasing as economies begin to open up.


Ethanol production is picking up somewhat too and stocks are declining. USDA thinks they will use 250 mln bu more for ethanol for the 2020/21 crop than the amount for the current crop, which fell hard so far in 2020.


USDA also expects corn exports to be up 375 mln bu this year and feed use by 350 mln. compared to last year, so USDA is optimistic on demand. However, they predicted a record 15.995 bln bu crop, which would blow away the previous record in 2016.


It is likely, however, that production will not get that high. There is some switching going on from corn to soybeans because of the soy/corn ratio. Yield will be the main factor for price direction. The US hasn’t had a serious, widespread drought since 2012.


The Canadian dollar has been strong lately and is up 3.7 cents from its March low. This is negatively impacting basis. This is the last thing Ontario farmers need right now with Chicago prices as low as they are.

 

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.


US farmers planted another 16 percent of their corn and 15 percent of their soybeans last week, to put them well ahead of last year and the average for the 10th of May. 67 and 38 percent of those crops are now in the ground.


USDA released its monthly demand/supply report on May 12. The May instalment always includes the first estimates for new crop, as well as updating the old crop.


US old crop corn carryout (CO) was put at 2.1 bln bu, less than the 2.22 expected. The CO for the 2020/21 crop was put at 3.389 bln, or 61 percent more. This would be the highest since 1988.


Old crop soybeans were pegged at 488 mln bu., less than the 580 expected. The new crop is expected to decline to 430 mln, for a 13 percent decline.


US wheat numbers were in line with expectations. The CO will fall to 909 mln bu, compared to 978 for last year. This would be the lowest since 2014. US wheat is rated 53 percent good/excellent.


World corn and wheat CO’s were well above expectations, while soybeans were less, as USDA expects China to import 7.2 mln mt more what they bought the past year.


Overall, there were no major surprises, so prices didn’t react much. Most traders are aware that USDA is notoriously high in these early estimates. Acres and yield will, as always, change these numbers.


It appears to me that grain prices are near wrung out on the downside. Prices are at long term support on the charts and near their lowest levels in over a decade.

 

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.


Outside markets were quiet also, with more gainers than losers. Most countries are being cautious about opening up their economies too quickly. Hopefully all the sacrifices will have been worth it and the world will get back closer to where it was.

 

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.


US corn is 51 percent planted, up 24 from last week. Normal for May 3 is 39 percent. The major states of Illinois and Iowa are at 78 and 56 percent respectively.


Soybean planting is at a record pace, with 23 percent in the ground. The average is 11 percent now. 46 percent of the soybeans are planted in Iowa, while Illinois is at 31 percent.


A mostly dry, albeit cold forecast means the rapid pace is likely continuing this week. Early planting generally leads to stronger yields. 2016 saw the fastest corn planting, and they had record yields.


There has been some progress in Ontario, but it is much slower. The heavier soils still aren’t fit, as the cool temperatures are slowing soil drying. The forecast is for more cold, but dry, so planting will proceed.


China is still well behind the pace needed to reach the targets set in Phase 1 of the trade agreement. Trump also feels CoVid wasn’t handled well by them. Trade relations are getting more strained.


Corona virus is still the main news story, by far. More and more countries are reducing restrictions on their citizens. Hopefully a secondary spike in cases doesn’t happen.


I believe people will still keep their distances, which will surely help. The world has sure changed in the past 2 or 3 months, socially and economically. Some good will come from all of this.


The economy is suffering, however. 30 million Americans have applied for unemployment insurance in the past 6 weeks. That’s over 16 percent of their workforce. It wipes out all the job gains of the past 10 years.


Government deficits are exploding. The US will add $3 trillion to theirs this year. Some think Canada’s yearly deficit could hit $252 billion this year. These are scary numbers, and there will eventually be consequences.


There was better news in livestock futures. Hogs have gained 56 percent since their low on April 14, while cattle are up a more minor 10 cents a pound since April. Hopefully packing plants get back to full production shortly.

 

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. 

 
The cheapest oil prices in decades came about as major suppliers produced too much and then demand tanked due to coronavirus. Everyone is driving less and airlines are operating at 10 percent of capacity. 

 
Livestock prices are very weak as packing plants are on reduced kill, also because of Covid. One third of US hog slaughter is currently shut down. Wholesale cattle prices hit record highs, as retail supplies are being limited by the shutdowns. 


More and more jurisdictions are easing up on the restrictions associated with the virus, which is a good thing. The economy has taken a major hit, but the fiscal and monetary stimulus governments are supplying will surely help. 

 
The TSX index in Toronto has gained back nearly 50 percent of the drop that started in February. The US S&P has recovered 60 percent of its losses, as energy isn’t as large a part of their index. Markets will now react to how well economies do after things open up.  


Unfortunately, it’s the Mom and Pop shops that have borne the brunt of the shutdowns. This is especially true in rural Ontario. Meanwhile, Amazon and Netflix stocks recently hit record highs, as consumer habits have changed.  


It will take months for the world to get back to where it was before Covid. Where people are allowed more freedom, the pace of progress is slow. Too much fear has been driven into society for a rapid recovery. 

 
Another side affect of what’s going on is that there has been an increase in demand for edible beans, both soy and dry, especially from Asia. African Swine Fever caused higher meat prices, and corona is doing the same thing everywhere now.  


Hensall Co op is trying to fill their new orders. Net returns can be greater than for the traditional crops, assuming average yields, and considering the cost of production.  


Most of Hensall’s edible soybeans carry a premium of $3.25/bushel. With elevator soybeans currently at $11.10, the premium is nearly a 30 percent to crusher beans. Yield drag isn’t great and cost of production isn’t that different.  


Compared to the $4.20 corn harvest price, kidney beans can return an extra $300.00 per acre. For those that would rather “direct harvest”, white and black beans can return an extra $135 to 150 per acre compared to corn. 


Another advantage of dry beans is that it splits up the workload, as they can be planted in June, and harvested in September. Planting wheat earlier, after the bean harvest, usually leads to higher wheat yields also.  

 

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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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

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