Grain markets are mostly red as the complex digests yesterday’s Prospective Plantings report from the USDA and resets some positioning amidst continued bearish COVID-19 sentiment.
“I think a moment of critical energy has suddenly emerged. But moments like this come and go unless we seize them at their height.” – Jonathan Kozol (American author)
Prospective Plantings Come & Go, a Carbon Tax Stays
Grain markets are mostly red as the complex digests yesterday’s Prospective Plantings report from the USDA and continued bearish COVID-19 sentiment. In that vein, U.S. stock markets suffered their worst calendar quarter performance since 2008, with the S&P 500 dropping 20% since the beginning of the year. 
Yesterday morning we got a few reports that China was opening up its border back up entirely to Canadian canola exports.  However, the official word from the Canola Council of Canada is that canola exports to China are continuing as normal, but that licenses for Richardson and Viterra remain suspended.  Thus, the status quo remains after a bunch of excitement yesterday about nothing. As a reminder, Canadian canola exports through Week 33 have totaled 6.1 MMT, a little bit above where we were at this time a year ago as the impact of reduced canola exports was being realized. As a side note, canola prices are in the green this morning thanks to the Canadian Loonie close to dropping below 70 cents USD again.
USDA Prospective Plantings: A LOT of Corn
The USDA came out yesterday with its Prospective Plantings report, telling the market what its phonecall survey of farmers this month will translate into in terms of acres this spring for Plant 2020. As mentioned in Monday’s Breakfast Brief, going into the Prospective Plantings report, the market was expecting see 94.1M acres of corn for Plant 2020, 85M acres of soybeans, and 45M acres of total wheat.
However, in the Prospective Plantings report, the USDA said American farmers will plant 97M acres of corn (+8% or 7.3M acres year-over-year), 83.5M acres of soybeans (+10% or 7.4M acres), and 44.7M acres of total wheat (-1%, or 503,000 acres).  For wheat, this includes 30.8M acres of winter wheat (-1.2% or 384,000 acres), 11.9M acres of HRS wheat (-1% or about 100,000 acres) and 1.29M acres of durum (-4% or 49,000 acres). Rounding out the Prospective Plantings report, here’s a breakdown of some other notable American acres that the USDA suggested for Plant 2020 yesterday.
- Canola: 1.99M acres (-2.5% year-over-year or 51,000 fewer acres)
- Flax: 270,000 acres (-28% or 104,000)
- Edible beans: 1.372M acres (+6.6% or 85,000)
- Chickpeas: 306,000 acres (-32% or 145,400)
- Lentils: 474,000 acres (-2.5% or 12,000)
- Peas: 971,000 acres (-12% or 132,000)
Also mentioned in Monday’s Breakfast Brief, ethanol demand (and thus ethanol production) has tanked, and so this corn acreage number is extremely doubtful. With the reduced demand, corn basis levels across the U.S. have been thrown in the dumpster and there’s little optimism it can climb its way out.  In fact, more than half of the losses for corn prices seen in the first 3 months of 2020 happened in March alone.
Put simply, these Prospective Plantings estimates from the USDA were taken through the first half of March (just when COVID-19 concerns were mounting and corn prices were falling) and so plans could change a little. That said, will corn prices have dropped further with this bearish Prospective Plantings report, Mother Nature always has the last say. For example, farmers in the Eastern Corn Belt are likely facing some soggy conditions for the next 3 months.  The silver lining is that temperatures in the area are expected to be above-average over the same time frame.
Conversely, this suggestion of 97M acres of corn from the USDA’s Prospective Plantings report includes the idea that the Western Corn Belt will plant a record 53.75M acres of corn, 1.3M acres higher than the previous record set in 2012 when it was hot and dry!  On a related note, a Farms.com producer survey says that Ontario farmers are planning to plant a record number of corn acres (2.38M and +8.1% YoY), fewer soybeans (3.06M and -1.8% YoY), and just 985,000 acres of all wheat (-10% YoY). 
Alongside the Prospective Plantings report, the USDA also released its quarterly stocks estimates as of March 1st. In it, the USDA said that U.S. corn inventories totaled 7.95 billion bushels (or 201.9 MMT if converting bushels to metric tonnes) which would be down 8% year-over-year and 180M bushels below what grain markets were expecting to see. For soybeans, the USDA said there was still 2.25 billion bushels in the pipeline (or 61.2 MMT), a 17% drop from a year ago, but it pretty much matched pre-report expectations. Finally, wheat supplies totalled just 1.14 billion bushels (or 31 MMT), down 11% from last year and nearly 300M bushels below what analysts were expecting. Ultimately, these numbers suggest that, based on demand usage, the USDA may have overestimated the size of the U.S. 2019 crop. Tell us something we don’t know!
A Carbon Tax and Recession Risk
This week is an important one for economic reports. After all, today is the first of the month and rent is due and it’s undetermined how many people and/or businesses will be able to pay. Second, we’ll get U.S. jobless claims on Thursday and then, third, unemployment numbers on Friday. Going into these reports, the U.S. Federal Reserve’s office in St. Louis is suggesting that the COVID-19 pandemic could cost 47M jobs, which would equate to an unemployment rate above 32%!  This would be a new record for the percentage of the American workforce who are unemployed, surpassing the 25% level seen at the height of the Great Depression (AKA the 1930s).
However, the St. Louis Fed is also estimating that there’s about another 67M people in the U.S. who are working in jobs that are at a high risk of layoffs. Indeed, it’s likely that we haven’t seen the worst from an economic standpoint, probably best evidenced by an internal memo from billionaire trading maverick, Steven Cohen, who told his team this week that “markets don’t come back in a straight line; after an earthquake there are tremors.”  The bottom line is that there are increasing concerns amongst economists and central bankers that a global recession could last a long time.  The impact and length will be more pronounced in developing countries, especially as their currencies have plummeted as investors pull their money out, making it more expensive to import food and fuel.
In my opinion, the Canadian economy is way more at risk to fall into a recession than the U.S., and for four reasons. First, expansive government spending (and planned spending) the past few years means the expenditures column on the Canadian economic balance sheet is its largest ever and is only expected to grow further and there’s no rainy day fund to tap into. . Second, the Canadian economy isn’t as diversified as that of, for example, the U.S. and the U.K., meaning that the expected depression in demand for commodities (of which Canada is a net-exporter of) means way less economic activity in Canada. Specific to the oil and gas industry, which accounts for about 11% of total Canadian GDP, oil prices at multi-decade lows and limited storage space is creating a ticking economic timebomb for all Canadians. 
Third, according to MNP’s Consumer Debt Index, nearly half of Canadians are now on the brink of bankruptcy, saying they’re within $200 of not being able to pay their monthly debt, with 25% of these people now unable to meet them at all.  Fourth, the Canadian Liberal government is going ahead with a planned increase on the carbon tax today, April 1st, the same day they’re giving themselves a raise of $2,800 for MPs and an extra $5,700 for Prime Minister Trudeau.  Amidst the COVID-19 pandemic and that the agricultural industry is being counted on more than ever, a increase in the carbon tax may be the final blow to businesses who can’t weather the economic storm any further. In fact, the Canadian agriculture industry is still not considered an “essential service” by the federal government but has been in the United States. 
Despite the many hours of lobbying and articles about the direct impact the carbon tax is having on Canadian farmers – including this one by the Globe and Mail which includes how it’s impacting my family in Foam Lake, SK – the carbon tax is set to increase by 50% to $30/tonne. A guy from Tuffnell, SK (and a land neighbour to my family in Foam Lake, SK) had something to say about the carbon tax.  It’s a bit long-winded but even your 8-year old being homeschooled right now can understand why raising the carbon tax (let alone, putting a carbon tax on farming in general) is a bad idea.
To wrap things up today, I could s say something like, “The only thing that’s a joke this April Fools Day is the care and concern that the federal government says it has for Canadian agriculture” but this agenda is already well-documented. Instead, I’d suggest you think about the smell of some freshly turned soil that you’ll get to experience in a few weeks. It’s one of my favourite smells in the world, and is a refreshing boost and reminder that life’s pages keep turning. That said, with the world slowing down, hopefully more people will take in a whiff of what they’re missing.
At 7:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4225 CAD, $1 CAD = $0.703 USD)
May Corn: -3.5¢ (-1.05%) at $3.373 USD or $4.797 CAD
May Soybeans: -12¢ (-1.35%) to $8.74 USD or $12.432 CAD
May Soybean Meal (per short ton): -$3.40 (-1.05%) to $318.10 USD or $452.49 CAD
May Soybean Oil (cents per lbs): -0.51¢ (-1.9%) to 26.50¢ USD or 37.70¢ CAD
May Oats: -0.8¢ (-0.3%) to $2.635 USD or $3.748 CAD.
May Wheat (Chicago): -9¢ (-1.6%) to $5.598 USD or $7.962 CAD
May Wheat (Kansas City): -5.8¢ (-1.15%) at $4.873 USD or $6.931 CAD
May Wheat (Minneapolis): -3¢ (-0.55%) to $5.363 USD or $7.628 CAD
May Canola: +1.8¢ (+0.15%) to $10.65/bu / $469.60/MT CAD or $7.487/bu / $330.13/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.