Under the Agridome

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It has been a pretty good week here. I got planting again last Thursday after an extended layoff. I pretty well got everything in. Then splat! Another 1.3 inches of rain is never welcome on freshly planted soybeans and a delayed planting season gets even more delayed. I realize that this is my backyard, and it is certainly not anybody else's. However, so far, this is not 2019 when planting season in Ontario extended into July.

It feels like crop prices should be higher, but they are not. I say that because we are getting to the point in mid-June where seasonality in the grain market usually tells us to sell new crop. However, this year not so much, as prices have been stagnant. I'm sure there are others who say, "We better sell now, Phil, before that big crop comes in this fall."

I'll let you judge for yourself on that, but keep in mind it is sure looking that way. About a year and a half ago, I said that big supply was winning and as we're going into late spring it still seems that way. Clearly, the bears are controlling the market and have been for some time. In fact, the bears are on one side of the market boat, which is never good because eventually it'll flip over. The question for producers is when will that happen?

It's a tough one this year because you can see what our non-commercial friends are doing. For the most part they are short in the wheat corn and soybean market. In fact, the wheat market is invariably that way. I don't think there's anybody excited in Ontario this year to harvest $6 wheat. If we're honest, we can also thank the value of the Canadian dollar for that. It is certainly put a floor underneath our crop prices for the last several years.

Next week we will get the USDA coming out with its June World Agricultural Supply and Demand Estimates (WASDE) report. I don't really expect too many fireworks, but we're leading up to a time at the end of the month when we could see grain price bombs going off. Any big changes in U.S. planted acreage will be dialed into the grain trading algorithms which could certainly cause grain price gyrations by the end of the month.

At the present time, Argentinian corn is the cheapest in the world and FOB rates are below U.S. corn prices. At the same time, our Brazilian friends have their safrinha (second-crop) corn maturing, which will start to be harvested in late June. This will cause all kinds of competition for the cheapest corn on the high seas including Ontario and Quebec corn. Add this to the big U.S. crop that is growing in the fields, and you can see why market prices have been fairly moribund during the last several weeks.

In many ways the grain market is acting like the crop is made even though it is only early June. This doesn't add up, because we all know the market risks that are ahead. A heat ridge is forecast to infiltrate the American grain belt in late June. If this turns into a heat "dome of doom", we all know the impact on the U.S. corn crop. Prices will go up.

In lieu of that, keep in mind this is all happening in a global supply market where competition is expanding; it is true that we have not had a major production calamity anywhere in the last few years and it is only a matter of time where it will take place. It's a bit hard for me to say that, because I'm still trying to get soybeans to peek through the ground constantly being "splat" on by Mother Nature. Despite that, keep in mind that the global backyard is different. As supplies increase offshore this might make American supplies even more onerous and cheap versus their Ontario and Quebec counterparts. Basis play is always a thing even in midsummer.

All of this is happening at a time in Ontario and Quebec where our crop is behind normal. Simply put, despite a really good April, May has been cold and wet, not good for our crops. Soybeans are struggling to emerge from over saturated ground. The corn crop still has potential, but it has lost a bit of its early season optimism. This is not a big reason for soybean-busting yields in Ontario and Quebec.

At the same time, the futures market is priced like everything is perfect. That's always a dangerous assumption in early June. Noncommercials may be leaning hard on the short side now, but it wouldn't take much -- a hot July pollination, a poor WASDE number, or shaky yield expectations -- to spark a major sentiment shift. These things don't always show up gradually. Sometimes, they turn quickly. There are things called black swans.

So no, crop prices haven't moved higher yet. But the risk is still in front of us, not behind. Sometimes, that's all the market needs, as farmers will live and breathe this risk.

In the meantime, like many of you, I'll be out there watching for soybeans to push through the crust and hoping Mother Nature taps the brakes on the rain. Because out here in the field, the crop's far from made and the story is far from over.

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Philip Shaw can be reached at philip@philipshaw.ca

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