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Philip Shaw 9/15 6:25 AM

Warm, sunny weather has returned to southwestern Ontario and the soybeans fields are turning rapidly. It has been a lament throughout Ontario this year that the crops are behind about two weeks. With warm, sunny weather moving in after a cold snap, we can only hope that this is the heat we have been waiting for. Corn needs to black layer and soybeans need to hurry up. We have wheat to plant! Yes, there are still some of us left in North America who will grow wheat.

Last week, the USDA weighed in with their latest crop production report. The September report is usually uneventful, but this time around it went against trade analyst's expectations. In the report, USDA pegged U.S. corn production at 14.184 billion bushels, with an average corn yield of 169.9 bushels per acre. The USDA also weighed in on soybeans pegging the crop at 4.431 bb, with an average yield of 49.9 bpa. This U.S. crop is just getting bigger.

Of course, many market observers and farmers were looking for a cut in U.S. production. Frankly, they were looking for that cut in August and didn't get it, and the September numbers were a disappointment. On Sept. 12 when these bearish numbers were released, the market retreated. Even with a bit of a weather scare this summer, it seems that the market is not worried.

USDA actually increased corn-ending stocks for 2017-18 to 2.335 bb. This was up 62 million bushels from their August report. USDA actually lowered new crop beginning soybean stocks by 25 mb. Over the last few days, prices have recovered a bit, especially in soybeans. A late drought in the United States is making a difference and a bit of dryness in South America is making a few people nervous.

With December corn currently at $3.53 a bushel, nobody is getting excited. With corn ending stocks growing toward 2.33 5 bb there is not a lot of hope here. It is a testament to genetics and management that this crop is so good with such an uneven growing season in 2017. In the spring, we had wet conditions in the Eastern Corn Belt and drought in the northwest Plains. However, we are arriving at harvest time with the crop just short of 170 bpa. Of course, combines are set to roll and we should be able to tell if the USDA yield is off, but we aren't expecting any big surprises. They will be marginal at best.

In Ontario, the corn crop is looking to be about 160 bpa. Of course, we need the heat for at least another month. However, the crop is one thing, our Canadian dollar is another. It has gained a dime against the U.S. dollar since May. It has created the situation where Ontario cash prices have lost substantially when futures have actually stayed the same or gained. That $.10 increase in the value of the Canadian dollar has corresponded with a $1.40 decrease in soybean basis values over that time. This happened even though the futures price for soybeans was virtually the same in May and September.

That reality is one of the biggest challenges Canadian farmers have with our marketing. The effect of foreign exchange can often mean our cash grain basis values haves more volatility than the futures price range over time. This is especially the case when the loonie is below 82 cents, where we found ourselves for the last year. Can you imagine waiting to gain that $1.40 back on the futures market? That can take forever.

The Canadian dollar has been on a tear mainly because the U.S. dollar has been on the decline, currently sitting at an index value of around 92. As you know, I believe that the Canadian dollar's value is usually inversely related to the U.S. dollar's value. As the U.S. dollar has declined, the Canadian dollar has gone up, and it is been accentuated by our economy growing at 4.5%. Of course, my lost twin brother, Stephen Poloz, governor at the Bank of Canada, has raised interest rates. This is like throwing gas on the fire. If the U.S. Federal Reserve starts raising rates in the U.S., we should see that U.S. dollar catch some wind. However, if they do not, the U.S. dollar is likely to grow weaker. This is good for grain futures prices, but it will make our Canadian loonie stronger.

So, we move on. It is easy to become complacent in eastern Canada when the Canadian dollar gets in the lower 70s. In fact, for the last year it is been a saving grace and maybe in 2018, we'll be looking for days gone by. Needless to say, the foreign exchange component of our marketing management looks to be more challenging. If the futures market takes off, and I hope it does, it might make our Canadian dollar irrelevant. However, that doesn't happen too often. The best we can do is to keep those marketing standing orders ready. Keep abreast of the market factors currently being played out in South America and around the world. We've been here before and we'll live another day.

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Thank-you for all your notes, email and letters. Keep it coming. If you have an opinion or comment, please feel free to get in touch.

Email: philip@philipshaw.ca Website: www.philipshaw.ca Follow Me On Twitter: www.twitter.com/Agridome

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Philip Shaw M.Sc., RR#2 Dresden Ontario N0P 1M0

(BAS)

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