USDA November Report Pushes Soybeans: Ontario Under a Mountain of Grain
A “shout out” this week to Tipp City, Ohio farmer Leo Grusenmeyer. I got a call earlier this week, telling me I had one of my American readers at my door. I drove home and met Mr. Grusenmeyer who had driven up north of Detroit to visit his daughter and made a special trip across the border to meet me. I tried to buy Mr. Grusenmeyer a Tim’s but he was on his way. He said he particularly enjoyed my DTN article every week. He invited me to his farm near Tipp City Ohio. I hope I get to drop in on my way to or from Louisville Ky come February.
Mr. Gursenmeyer told me he follows the markets everyday via “the DTN.” This past week those markets lit up again with the release of the November USDA supply and demand reports. The USDA said that corn yields are now forecast than 154.3 bushels per acre putting the total crop at 12.540 billion bushels. The ending stocks were cut once again to 827 million bushels, which was down from the 902 million bushels recorded in October. Those yield figures were within the trade estimates and the corn market has drifted down since the report was released. Part of the thought is lower production numbers had already been worked into the market. The January USDA report will be the next big adjustment to the corn yield figure.
It is hard to tell in Ontario that there has been any type of corn production problem. If you were centered here you will know that we are headed toward a provincial record corn yield possibly approaching 170 bushels per acre. There is so much corn that storage is being choked, elevators have closed especially in Eastern Ontario and vessels are waiting to be loaded at different ports on the Great Lakes as well as the St. Lawrence River. In fact basis levels have shrank so much that Ontario holds the title for the cheapest corn in North America.
On the soybean front the USDA surprised the market. We had been led to believe that they were more soybeans than there really is. The USDA cut its forecast for soybean production to 3.375 billion bushels down from the 3.408 billion bushels recorded in October. This represented a reduced yield of 43.9 bushels per acre down bushel from last month. The ending stocks are now projected to be at approximately 185 million bushels, which is a cut from the 265 million bushels forecast in October.
The market reacted accordingly with corn drifting lower and soybeans taking off. In fact you could make an argument that the mother of all acreage battles is set to go. With soybeans gaining and corn losing at a certain point they have to get in the right ratio. With the South Americans producing most of the world soybeans, any production blip down south will surely send the soybean complex into a dither.
Of course all this is being affected by the QE2 our American friends have given to the world. I may have said last week that I have been dreaming of $20 soybeans. Someone today told me $11 was enough and they would wait for me to get the $20. We’ll see what happens.
You may remember that I used to have a saying about the price of the last bushel. I would often talk about the last bushel in the context of the fundamentals of grain. In other words what would be the price of the last bushel after the demand finally ate up the supply. Usually this meant that the price of the last bushel wouldn’t be so good. However I believe in 2010 we need to completely redefine how we price our commodities and what the value of the last bushel really is. For instance in 2010 when you consider the amount of noncommercial money in the market combined with QE2, the price of the last bushel may have little to do with the fundamentals.
We shall see. For the moment flat prices are king. For instance I talked with a large Ontario corn buyer today who told me they were buying lots of grain as farmers were selling. I was also told by another farmer that for the first time in his career, he has everything sold this fall. With flat prices currently at levels of rare air, who could blame him? Futures and basis be gone!
The challenge now for prices will be see if demand can be maintained at these levels. In Ontario and Québec there is a mountain of grain to get through, ship offshore or make disappear somehow. Until that happens basis levels will continue to be the worst in many years. At one time that would be called a disaster, but this year not so much. These market conditions are truly one of a kind.