Under the Agridome

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This week we had a little bit of a wakeup call with cooler weather across the board. I was hoping for stinky hot weather deep into September to help out my replanted soybeans. Having temperatures dip into the single-digits this time of year in southern Ontario is unusual. I hope to get back to hotter weather next week or the week after.

The long-term forecast does not necessarily share that view: It calls for a more fall-like setting coming in September. That may surely create challenges for myself, but it may not matter with the rest of Ontario. Keep in mind, most of Ontario suffered through drought this year, which will be the biggest limitation to yield and profitability.

That has made it tough for sure for many crop farmers across Ontario and Quebec. However, we know as farmers that's not the end of it. We still have to deal with the vagaries of the market. Much of that this year has to do with figuring out how our Ontario and cash grain market is going to work. Drought-induced crops will change that paradigm. Going even further, surely there will be other factors that will affect our cash price discovery.

A good example of this is playing out now in the United States. Yes, we know that the USDA is predicting record crops this year in the U.S. The last USDA report pegged American production to come in at 188.8 bushels per acre (bpa) of corn and 53.6 bpa of soybeans. This is pushing the corn domestic production to 16.7 billion bushels (bb). The soybeans will come in at 4.29 bb. That story predictably has led to futures prices declining over time. However, the cash price story is even more interesting. For instance, with the Chinese not buying American new crop soybeans, basis levels are going down almost on a daily basis in the U.S. Northern Plains.

DTN analyst Mary Kennedy recently documented that in her Market Matters Blog. (See https://www.dtnpf.com/…) In it, she documented a farmer who had booked a negative $1.00 basis on soybeans on Aug. 21, only to have it now dropping to $1.60 under. Ditto across other locations in North Dakota and Minnesota. Of course, there will be a ripple effect into Western Canada, as well as other points in the American Midwest. Simply put, there is no basis bid in the Pacific Northwest because China is not buying beans.

Translating this into our Canadian perspective is a bit difficult. It is easy for us to understand how China might not want to buy American soybeans because of the ongoing trade war between the U.S. and China. We have our own problems with our American friends and Canadians en masse are boycotting U.S. products. However, we also have our problems with China, which are well documented during the last several years. Of course, at the present time we have a real problem with canola with Chinese tariffs of 76% and 100% on canola meal and oil. Cash basis values have dropped in Western Canada, but of course we know it's just a long story. Having some type of trade harmony would go a long way to making this all better.

It's easy for a Canadian to say that we understand why the Chinese will not buy one U.S. soybean. However, realistically the Americans at the present time have quite a price advantage that the Chinese could take advantage of. You would think at a certain point that common sense would take over principle and they would bite the bullet on U.S. soybeans. Needless to say, there's lots of bad blood right now between countries such as the U.S., China, Canada and Brazil that makes this such a mixed bag. Brazil keeps raising soybean production, satisfying China's needs. However, at the same time our U.S. friends have slapped 50% tariffs on Brazil, and we all know the problems we have between our trade partners here in Canada. It's a difficult problem.

Unfortunately, farmers cannot do a lot about that, but what we can do is try to understand the cash grain market we find ourselves in. Yes, some U.S. farmers never expected to have lower and lower soybean basis bids and the possibility of no bid in their future. At the same time, in Ontario and Quebec, a greatly reduced corn crop will likely present basis opportunities for farmers who are lucky enough to have corn this year. The hard part is gathering enough market intelligence about our cash markets to make good decisions. It's also made somewhat harder because grain companies usually keep that information close to the vest. Getting the advantage in the cash market is something to hold onto.

At the present time, cash corn in southwestern Ontario was valued at about $5.30 per fall delivery. Soybeans are at $13.50 for fall delivery as the crop is getting closer to harvest. The challenge for every farmer in Ontario and Quebec is to anticipate the cash market environment as we move ahead. Yes, as always this will be an appreciation of the Canadian dollar value as well as everything else. 2025, with everything going on it's going to be difficult.

The road ahead will remain a challenge. Key will be adapting to the changing rhythm of our cash markets, where volatility is often the rule rather than the exception. We've seen this before: years when drought cuts the crop and basis becomes the real story. The challenge is to stay disciplined when those moments come, because in 2025 the margin between profit and loss likely will be razor thin.

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The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

Philip Shaw can be reached at philip@philipshaw.ca

Follow him on social platform X @Agridome

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