Under the Agridome

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I've been waiting for a black swan -- an unpredictable or unforeseen event, positive or negative -- to come along for quite some time now.

However, as you all know, that has never really happened and we have had grain prices at moribund levels for quite some time. Interestingly, we had the USDA Crop Production and World Agricultural Supply and Demand Estimates reports come out this past Tuesday, Aug. 12 (https://www.dtnpf.com/… and if you stretch really hard, you might say we had a bit of a black swan.

According to the minions at the USDA, we can expect a billion bushels more corn this year more than we thought we would get last week. Does that qualify?

I don't think so, but in all the years of writing agricultural commodity commentary, this recent USDA report was quite a doozy in the corn complex. The USDA increased U.S. domestic corn production by 1 billion bushels (bb) moving from 15.705 bb to a whopping 16.742 bb. By contrast, the previous record was 15.34 bb in 2023-24. The harvested acreage was also increased from the July estimate, but the big thing was the new projected U.S. corn yield of 188.8 bushels per acre (bpa). That was a good 7 bpa higher than had been predicted earlier.

Off the top of my head, I would say that you would think that's the high watermark for the year. For instance, do we really expect the average yield in corn to go up in the U.S.? It's almost hard to imagine. Needless to say, corn tanked on the day with December corn now at $3.97 bushel on Thursday. This is actually up $0.05 from the December corn contract low we got last Tuesday. To keep your spirits up, we were able to hold above the low from last August of $3.85. Can I get an ovation for that?

Maybe we could muse that corn prices are lying to us now. However, we know that the true liars are soybeans and they got fundamentally different news from the USDA versus corn. U.S. soybean production is now forecast to come in at 4.29 bb based on an average yield of 53.6 bpa, which would be a record high if those beans do fill those top pods. This was at the low end of trade expectations and, to top it off, the USDA also reduced harvested soybean acreage from 82.5 million acres to 80.1 million acres. In other words, this USDA report gave us a lot less soybeans than expected. Soybean prices were up on the day, and it continued until they dropped off about $0.15 on Thursday.

It would be easy to say after that soybeans are bullish, and corn is bearish. However, both are bearish. If you queue up the conspiracy theorists and ambulance chasers, everybody will have a theory about soybeans. If, in the next three weeks, it is hot and dry in the United States, that soybean yield will be cut and with it so will be the ending stocks. If yield falls even modestly, to 52.5 bpa --- and exports decline less than USDA's 170-million-bushel cut -- ending stocks could slip to levels last seen in 2013-14, when Chicago futures traded north of $15/bushel. That would raise Ontario and Quebec cash soybean bids substantially.

It is easy to say that August rains will tell the story, but keep in mind we are in the middle of August, so time is running out for any type of surprise. Interestingly, much of Ontario has been in drought this summer. This past week, most of southwestern Ontario got substantial rainfall to break that drought. However, it was a very devastating drought for many Ontario farms. I saw one yield forecast Thursday for one particularly drought-stricken field in central Ontario that was rated at 18.7 bpa of corn. Clearly, with such devastating results sporadic throughout the province, there could be basis opportunities pop up for both corn and soybeans this fall. Ontario will not have its usual big supply we have become accustomed to. Arbitraging grain between have and have-not areas will be very real.

There is room for some late-summer market rallies. Keep in mind, on Friday a huge geopolitical meeting is taking place in Alaska. Russian President Vladimir Putin and U.S. President Donald Trump are getting together to try to end the Russia-Ukraine War. This war has exacted a terrible price on both nations, but it has also rumbled through our grain markets. Any big news surrounding this meeting and the war will likely affect grain prices further.

As we head toward September, the crop weather of the next three weeks is key. As we stare into the late-summer sun and wonder whether those top pods will fill, remember this: Soybean markets can pivot quickly, and when they do, Ontario and Quebec cash bids can go from sleepy to sizzling faster than you can say "November delivery." We've got a smaller U.S. soybean crop on paper, a yield forecast that looks more like a wish than a guarantee, and basis here at home that could get aggressive if our own drought-thinned supplies start to pinch. Ditto for Ontario corn.

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Philip Shaw can be reached at philip@philipshaw.ca

Follow him on social platform X @Agridome

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