An update on commodity markets and potential impact on Ontario Farmers. Steve Duff,OMAFRA

1. 2020 Commodity Outlook
Steve Duff
Chief Economist
OMAFRA

2. Overview
▪ US market situation and outlook
▪ Canadian and Ontario Market Situation
▪ Ontario Outlook
2

3. US Market Situation and
Outlook
3

4. Parity Era
Target Price Era
Decoupled Era
Source: USDA-NASS
1933
AAA
1996
FAIR Act
US Farm Policy – Distinct Eras
4

5. Source: University of Illinois 2018
• 2018 Market Facilitation Payment (MFP) - Corn: payment of $0.01 per bu is about 0.29% of
the current cash price of $3.41 per bu in the US - did little to retrace the roughly $0.60 per bu
lost since June. Soybeans: payment of $1.65 per bu is about 19% of the current cash price of
$8.58 in the US – retraced a larger portion of the roughly $2 per bu lost since June
• As of November 18, 2019, USDA reports that MFP 2019 has paid $6.898 billion of the
announced $14.5 billion; MFP 2018 is reported to have paid farmers $8.59 billion. MFP
makes direct cash payments to farmers of select commodities and was created by the Trump
Administration, not Congress.
US Corn and Soybean Prices during China Dispute
5

6. Source: WASDE
US Corn used for Ethanol
6

7. 2018- 2019 Changes in US Corn Exports
Source: USDA-FAS
7

8. Source: USDA-FAS
2018- 2019 Changes US Soybean Exports
8

9. US 2019 Estimated Corn Yields
9
Source: USDA-NASS

10. US 2019 Estimated Soybean Yields
10
Source: USDA-NASS

11. US Drought Monitor
11
▪ Less than 1% of corn & soybean areas affected by
drought
▪ Roughly 10% of hay and grazing areas affected by
drought

12. US Corn Supply-Disposition
Source: USDA - WASDE
12
CORN
2016/17 2017/18 2018/19
2019/20
as of Jan
2019 2020/21
Area Planted 94 90.2 88.9 89.7 94.5
Area Harvested 86.7 82.7 81.3 81.5 87.1
Yield per Harvested Acre
174.6 176.6 176.4 168.0 178.5
Beginning Stocks 1,737 2,293 2,140 2,221 1,893
Production 15,148 14,604 14,340 13,692 15,545
Imports 57 36 20 50 50
Supply, Total 16,942 16,933 16,500 15,963 17,488
Feed and Residual 5,470 5,302 5,432 5,525 5,775
Food, Seed & Industrial
2/ 6,885 7,054 6,791 6,770 6,870
Ethanol & by-products
3/ 5,432 5,600 5,376 5,375 5,725
Domestic, Total 12,355 12,356 12,223 12,295 12,645
Exports 2,294 2,438 2,065 1,775 2,100
Use, Total 14,649 14,794 14,288 14,070 14,745
Ending Stocks 2,293 2,139 2,221 1,893 2,743
Stocks-Use Ratio 15.7% 14.5% 15.5% 13.5% 18.6%
Avg. Farm Price ($/bu) 3.36 3.36 3.61 3.85 3.40
Million Acres
Bushels
Million Bushels
USDA Corn long-term projections as of October 2019

13. US Soybeans Supply-Disposition
Source: USDA - WASDE
13
SOYBEANS
2016/17 2017/18 2018/19
2019/20 as
of Jan 2019 2020/21
Area Planted 83.4 90.1 89.2 76.1 84.0
Area Harvested 82.7 89.5 87.6 75.0 83.2
Yield per Harvested
Acre 52 49.3 50.6 47.4 50.5
Beginning Stocks 197 302 438 909 474
Production 4,296 4,411 4,428 3,550 4,200
Imports 22 22 14 15 20
Supply, Total 4,515 4,735 4,880 4,482 4,694
Crush 1,901 2,055 2,092 2,105 2,135
Seed 105 104 88 96 100
Residual 41 8 43 32 32
Domestic, Total 2,047 2,167 2,223 2,233 2,267
Exports 2,166 2,129 1,748 1,775 1,895
Use, Total 4,213 4,296 3,971 4,008 4,162
Ending Stocks 302 439 909 474 532
Stocks-Use Ratio 7.2% 10.2% 22.9% 11.8% 12.8%
Avg. Farm Price ($/bu) 9.47 9.33 8.48 9.00 8.85
Million Acres
Bushels
Million Bushels
USDA Soybean long-term projections as of October 2019

14. U.S. Meat Production
Source: USDA - WASDE
14

15. US Cow Herd Size
15
▪ US cow herd bottomed in 2014 and is now into a fifth
year of expansion – some signal of contraction

16. 2018- 2019 Changes in US Beef Exports
Source: USDA-FAS
16

17. US Beef Supply-Disposition
17
Source: USDA - WASDE
Beef Units 2017 2018 2019 2020
Beginning stocks Mil. lbs. 757 649 662 675
Commercial production Mil. lbs. 26,187 26,944 26,948 27,670
Change from previous year Percent 3.8 2.9% 0.0% 2.7%
Farm production Mil. lbs. 63 66 66 66
Total production Mil. lbs. 26,250 26,938 27,014 27,736
Imports Mil. lbs. 2,993 2,998 3,030 2,870
Total supply Mil. lbs. 30,000 30,585 30,706 31,281
Change from previous year Percent 3.5 2.0% 0.4% 1.9%
Exports Mil. lbs. 2,860 3,161 3,126 3,305
Ending stocks Mil. lbs. 649 10.5% -1.1% 5.7%
Total disappearance Mil. lbs. 26,491 26,762 26,905 27,301
Per capita, retail weight Pounds 57 57.2 57.2 57.7
Change from previous year Percent 2.6 0.4% 0.0% 0.9%
Prices
Steers, 5-area $/cwt 121.52 114.50 114.50 114.00
Feeder steers, Oklahoma City $/cwt 145.08 146.93 140.50 141.00
Cattle inventory 1,000 head 93,705 94,298 94,759 94,950
Beef cow inventory 1,000 head 31,210 31,466 31,765 31,641
Total cow inventory 1,000 head 40,559 40,898 41,119 41,000
USDA Beef long-term projections as of October 2019

18. US Sow Herd Size
18
▪ US sow herd bottomed in late 2013 and is now into a
fifth year of expansion

19. US Sow Herd Productivity
19
▪ US productivity per litter has grown rapidly since 2006

20. 2018- 2019 Changes in US Pork Exports
Source: USDA-FAS
20

21. US Pork Supply-Disposition
21
Source: USDA - WASDE
Pork Units 2017 2018 2019 2020
Beginning stocks Mil. lbs. 507 554 559 590
Commercial production Mil. lbs. 25,584 26,315 27,578 28,680
Change from previous year Percent 2.6 2.9% 4.8% 4.0%
Farm production Mil. lbs. 14 15 14 14
Total production Mil. lbs. 25,598 26,330 27,592 28,694
Imports Mil. lbs. 1,116 1,042 956 915
Total supply Mil. lbs. 27,221 27,926 29,107 30,199
Change from previous year Percent 2.2 2.6% 4.2% 3.8%
Exports Mil. lbs. 5,632 5,876 6,580 7,300
Ending stocks Mil. lbs. 512 559 590 630
Total disappearance Mil. lbs. 21,077 21,491 21,937 22,269
Per capita, retail weight Pounds 50.2 50.9 51.7 52.1
Change from previous year Percent -0.1 1.4% 1.6% 0.8%
Prices
National base, live equivalent $/cwt 50.48 45.93 49.00 58.00
Hog inventory,
Total Hog Inventory 1,000 head 71,545 73,145 74,915 77,050
USDA Pork long-term projections as of October 2019

22. Canadian & Ontario
Market Situation
22

23. Ontario Crop Production
23
FieldcropproductionstatsinOntario(2007-2019)
HarvestedArea(acre)inOntario
5-yrCAGR 10-yrCAGR
Typeofcrop 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2014-2019
CAGRa
2009-2019
CAGRa
% change
2018 to
2019
WinterWheat 595,000 1,255,000 970,000 855,000 1,100,000 840,000 1,070,000 775,000 649,000 1,080,000 920,000 914,000 656,100 -3.3% -3.1% -0.7%
SpringWheat 180,000 195,000 128,000 132,000 115,000 89,000 80,000 80,000 125,000 119,000 90,000 81,500 95,000 3.5% -2.9% 16.6%
Corn forgrain 2,055,000 1,740,000 1,820,000 1,940,000 2,000,000 2,210,000 2,210,000 1,865,000 2,080,000 2,110,000 2,060,000 2,080,000 2,147,500 2.9% 1.7% 3.2%
Canola 48,000 55,000 50,000 80,000 88,000 74,000 60,000 32,000 35,000 39,000 43,000 62,400 43,100 6.1% -1.5% -30.9%
Soybeans 2,225,000 2,095,000 2,465,000 2,495,000 2,463,000 2,587,000 2,595,000 3,060,000 2,930,000 2,770,000 3,060,000 3,005,000 3,089,600 0.2% 2.3% 2.8%
DryWhiteBeans 85,000 79,000 49,000 85,000 35,000 65,000 45,000 59,000 65,000 51,000 69,000 52,300 66,400 2.4% 3.1% 27.0%
DryColoured Beans 74,000 54,000 47,000 60,000 52,000 55,000 45,000 64,000 65,000 70,000 61,000 65,200 79,000 4.3% 5.3% 21.2%
aCompound AveGrowth Rate(CAGR)
YieldinOntario
5-yrCAGR 10-yrCAGR
Typeofcrop 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2014-2019
CAGR
a
2009-2019
CAGR
a
% change
2018 to
2019
WinterWheat 73.6 80.2 73.2 79.5 75 78.3 79.3 77.2 78.6 87.5 87.3 83.6 76.8 -0.1% 0.4% -4.2%
SpringWheat 51.1 49.5 50.6 52.3 52 55.1 52.2 56.3 64 52.9 46.7 54.3 58.5 0.8% 1.5% 7.7%
Corn forgrain 133.8 156.3 142.9 163.9 152 153.2 160.5 160.4 169 156.4 167 166 158.4 -0.3% 1.0% -4.6%
Canola 34.7 40 39.4 41.6 36.9 36.5 36.7 43.1 42.9 41.9 46.5 47.1 43.2 0.0% 0.9% -8.3%
Soybeans 33 43.4 40.2 46.1 47.6 48.3 45.9 45.5 46.8 45.5 45.6 51.4 44.1 -0.6% 0.9% -14.2%
DryWhiteBeans 16.1 20.3 17.8 21.4 20 23.1 22.2 22.3 19.6 21.1 20.6 26.4 18.7 -3.5% 0.5% -29.2%
DryColoured Beans 13.6 22.5 19.1 20.6 19.2 20 18.4 22.3 19.3 17 20.4 23.9 19.1 5.4% 0.6% 17.2%
Harvestedarea(acres)
Averageyield(bushelsperacre)
http://www.omafra.gov.on.ca/english/stats/crops/estimate_hist_imp.xlsx

24. Ontario Crop Yield
24
http://www.omafra.gov.on.ca/english/stats/crops/estimate_hist_imp.xlsx

25. Ontario Land Rental Rates
25
http://www.omafra.gov.on.ca/english/stats/county/farmvalue.xls
Estimated Rental Rate per acre, Province, CAR, CD, 1991- 2016
Source: 1991-2016, Census of Agriculture, Statistics Canada
Geography 1991 1996 2001 2006 2011 2016
Ontario 47 54 58 72 89 149
Southern Ontario Region 78 92 103 123 143 227
Hamilton-Wentworth Regional Municipality 54 59 .. .. .. ..
Hamilton Division .. .. 55 72 83 139
Niagara Regional Municipality 72 70 63 128 108 168
Haldimand-Norfolk Regional Municipality 73 81 84 114 135 231
Brant County 69 84 92 113 137 226
Oxford County 83 100 135 152 183 252
Elgin County 71 35 97 115 124 197
Chatham-Kent Division .. .. 154 157 186 292
Essex County 89 101 112 125 144 226
Lambton County 67 78 98 120 143 217
Middlesex County 70 82 106 112 144 247
Kent County 104 128 .. .. .. ..
Western Ontario Region 42 49 59 74 94 156
Peel County/ Regional Municipality 37 37 37 31 36 58
Dufferin County 23 26 30 43 54 82
Wellington County 38 42 54 62 90 151
Halton County/ Regional Municipality 34 35 38 42 54 105
Waterloo County/ Regional Municipality 59 66 107 112 116 196
Perth County 71 93 115 159 191 312
Huron County 63 82 108 121 155 251
Bruce County 31 37 38 55 68 122
Grey County 16 16 16 20 30 51
Simcoe County 37 40 42 54 61 95
Source: 1991-2016, Census of Agriculture, Statistics Canada
Geography 1991 1996 2001 2006 2011 2016
Ontario 1.9% 2.3% 1.9% 1.7% 1.5% 1.6%
Southern Ontario Region 3.0% 3.0% 2.5% 2.3% 1.9% 1.9%
Hamilton-Wentworth Regional Municipality0.9% 1.2% .. .. .. ..
Hamilton Division .. .. 1.1% 0.9% 0.8% 1.0%
Niagara Regional Municipality 1.1% 1.3% 1.0% 1.4% 0.9% 1.0%
Haldimand-Norfolk Regional Municipality3.5% 3.3% 2.6% 2.6% 2.2% 2.2%
Brant County 2.3% 2.7% 2.3% 1.9% 1.9% 1.9%
Oxford County 3.3% 3.0% 2.7% 2.2% 1.8% 1.5%
Elgin County 3.7% 1.4% 2.8% 2.6% 2.1% 2.0%
Chatham-Kent Division .. .. 4.2% 3.6% 2.8% 2.7%
Essex County 3.1% 2.8% 2.3% 1.8% 1.7% 1.7%
Lambton County 3.8% 3.4% 3.1% 2.9% 2.4% 2.2%
Middlesex County 2.9% 2.8% 2.7% 2.2% 1.9% 2.0%
Kent County 4.8% 4.3% .. .. .. ..
Western Ontario Region 1.4% 1.9% 1.6% 1.4% 1.3% 1.3%
Peel County/ Regional Municipality 0.3% 0.4% 0.3% 0.2% 0.1% 0.2%
Dufferin County 0.7% 1.1% 1.0% 0.9% 0.8% 0.9%
Wellington County 1.2% 1.6% 1.5% 1.2% 1.2% 1.3%
Halton County/ Regional Municipality 0.2% 0.4% 0.3% 0.2% 0.2% 0.4%
Waterloo County/ Regional Municipality 1.8% 2.8% 3.7% 2.4% 1.7% 2.1%
Perth County 2.1% 3.2% 3.0% 2.8% 2.4% 2.5%
Huron County 0.5% 1.3% 1.2% 1.0% 0.8% 0.9%
Bruce County 0.7% 0.9% 0.8% 0.8% 0.7% 0.8%
Grey County 0.7% 0.5% 0.3% 0.3% 0.3% 0.3%
Simcoe County 2.2% 1.8% 1.2% 1.2% 0.9% 0.8%
Ratio of Estimated Rental Rate per acre to Estimated Value of Land per acre,
Province, CAR, CD, 1991- 2016

26. Ontario Corn Basis
26
http://www.omafra.gov.on.ca/english/stats/crops/weeklycornprice.xlsx

27. Ontario Soybean Basis
27
http://www.omafra.gov.on.ca/english/stats/crops/weeklysoybeanprice.xlsx

28. Beef Imports
28
▪ Beef imports are a major part of the Canadian supply chain and
have returned to pre-BSE levels – 26%
▪ Ontario imports close to 50% of beef consumption

29. Canadian Cattle Slaughter
29
• Tight supply has lead to increasing carcass weights

30. Ontario Cattle Slaughter
30
• Ontario cattle slaughter fell as cow numbers fell over time
• Eastern Canadian processingcapacity has changed as Quebec lost its
major plant, Ontario lost many provincial plants and Ontario fed cattle lost
access to plants in the US
• Slaughter prices have fallen as US supplies have grown and Ontario
packers processedmore Ontario and Quebec cattle

31. Retail Meat Prices
31
▪ Growing demand for lean protein
▪ Beef demand continues to rise despite rising prices

32. Ontario Feeder Calf Basis
32
• Weekly basis calculations available on OMAFRA’s statistics website:
www.omafra.gov.on.ca/english/stats/livestock/weeklycattleprice.xlsx
http://www.omafra.gov.on.ca/english/stats/livestock/weeklycattleprice.xlsx

33. Ontario vs Alberta Fed Cattle Slaughter Basis
33
• Ontario fed cattle prices post BSE were typically higher than in
Alberta – higher basis
• Since 2016, with few outlets for Ontario fed cattle outside of Ontario
and within Ontario, the basis has fallen relative to Alberta

34. Ontario Fed Cattle Slaughter Basis
34
• Start of 2019 saw a historically weak basis largely due to concerns about access to
China
• Closure of Ryding Regency has not significantly affected the overall basis
• Data available to calculate basis doesn’t reflect the discounts many feedlots are
experiencing due to having to ship heavy cattle as a result of the backlog of cattle
created by Ryding’s closure and more cull cows being processed
http://www.omafra.gov.on.ca/english/stats/livestock/weeklycattleprice.xlsx

35. Ontario Sow Herd Productivity
35
▪ Ontario productivity per litter has grown rapidly since 2006
▪ Ontario pigs born per litter exceed US by almost 2 pigs

36. Ontario Hog Slaughter
36
• Total Ontario hog slaughter fell as sow numbers declined and has
began to rise again
• Roughly 1.5 million market hogs go to Quebec for slaughter now

37. Ontario Hog Slaughter
37
• Tight slaughter supply means a stronger basis
• Movement of hogs to Quebec has pushed this also
http://www.omafra.gov.on.ca/english/stats/livestock/weeklyswineprice.xlsx

38. Pork Imports
38
▪ Pork imports are a major part of the Canadian supply
chain
▪ Ontario imports roughly 40% of pork consumption

39. Ontario Market Outlook
39

40. 40
Ontario G&O Price Trends, Outlook, and Returns

41. Using Feeder Futures and Basis – Looking Forward
• Here’s what feeder cattle futures on Nov 11, 2019 and a weekly five
year average basis would suggest for Ontario 500-599 pound steer
prices for the next year
41

42. Using Fed Cattle Futures and Basis – Looking Forward
• Here’s what fed cattle futures on Nov 11, 2019 and a weekly five
year average basis would suggest for Ontario 1,250+ pound
liveweight fed steer prices for the next year
42

43. 43
Adapted from OMAFRA RMP feedlot farm sample
Ontario Cattle Price Trends, Outlook and Returns

44. Using Live Hog Futures and Basis – Looking Forward
44

45. Ontario Hog Price Trends, Outlook, and Returns
45
Adapted from OMAFRA RMP hog finishing farm sample

46. Highlights
▪ Long-term prospects for the ag sector continue to be bright.
▪ 2020 should see modestly higher US acreage for grains & oilseeds crops.
▪ US beef and pork production continues to grow while demand is growing –
adding strength to prices in the medium to longer term
▪ Unpredictability and volatility are likely to increase due to expansion of
livestock markets in the US and high level of stocks
▪ Weak Canadian dollar continues to largely shield Canadian farmers from
price weakness experienced in US.
▪ Ontario prices
▪ Farmers must continue to implement a number of strategies:
• pushing for production and cost efficiencies;
• participating in business risk management programs;
• hedging on commodity markets;
• using available marketing tools;
• ensuring credit is in place before it is needed; and,
• reducing debt and increasing liquid assets.
46