Market Trends Report – April & May 2023
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US and the World
Here we are, the end of April and for a large part of the corn belt we’re off to the races. It’s either go time for planting or it’s about to be go time as farmers across the great North American farm belt begin to plant corn and soybeans. It’s early yet but everybody wants to get off to a good start. As of Sunday April 16th, 8% of the American corn crop had already been planted which is 4 percentage points greater than last year. At the same time 4% of the American soybean crop had been planted. On April 10th, the USDA weighed in with their latest World Agricultural Supply and Demand Estimates (WASDE) report.
This April USDA report is often minor in nature coming after the big USDA data dump on March 31st and this time proved no different. The USDA kept corn ending stocks at 1.342 billion bushels as well as corn export demand at 1.85 billion bushels, the same as in the March report. Total corn usage also came in at 13.805 billion bushels with a slight decrease in the food, seed and industrial use for corn. The Brazilian corn production is still expected to be 125 MMT, but Argentinian production was reduced by 3 MMT down to 37 MMT.
On the soybean side of the ledger there was little change with the USDA keeping 2022/23 soybean ending stocks at 210 million bushels. On the global front the USDA actually lowered global soybean production by 5.5 MMT, but also decreased the crush estimates leaving little adjustment for the overall global stocks figure. In South America, the USDA actually raised Brazilian soybean production by 1 MMT up to 154 million metric tonnes. Argentinian soybean production was slashed from 33 million metric tonnes to 27 million metric tonnes. The USDA recorded its lowest wheat ending stocks number in nine years at 598 million bushels.
On April 22nd, corn, soybean and wheat futures were lower than the last Market Trends report. July 2023 corn futures were at $6.15 a bushel. The December 2023 corn futures contracts sits at $5.48/bu. The July 2023 soybean futures were at $14.49 a bushel. The November 2023 soybean futures stood at $12.85. The May 2023 Chicago wheat futures closed at $6.61 a bushel. The Minneapolis May 23 wheat futures closed at $8.60 a bushel with the Sept 2023 contract closing at $8.59 a bushel.
The nearby oil futures as of April 21st closed at $77.87/barrel up from the nearby futures recorded in the last Market Trends report of $75.67/barrel.
The Canadian dollar noon rate on April 22nd, 2023, was .7386 US, almost the same versus the .7389 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate was maintained at 4.5%.
Ontario
In Ontario good spring weather in mid-April help dry the land up and there was quite a bit of field work attempted on some of the lighter soils in the province. There is some corn planted in the deep southwest of Ontario, but the major push is still yet to come. It’s expected this year among some private estimates that Ontario could see a record corn planting of approximately 2.3 million acres. However, that is still an estimate and spring weather will have a large factor in that determination.
In Ontario basis levels for grain have decreased over the last three weeks partly reflecting the lower grain futures value and static Canadian dollar currently valued at .7386 cents US. Still, with this foreign exchange value it’s a stimulus to Ontario cash grain prices and will likely remain so over the next few weeks and maybe months. As it is, there is lots of old crop corn in the province and we will need export opportunities to reduce this. “Cheap” is often the common denominators when it comes to export competition, an unfortunate reality for Ontario farmers.
It is always difficult to know where the Canadian dollar might be going. As always, it reflects the inverse value of the US dollar, but also a barometer of the strength of the Canadian economy. The reality is, it’s a thinly traded currency, which has a big effect on Ontario cash grain prices. It’s difficult to predict any big increase in value, but it’s always important for Ontario farmers to monitor its value as a sudden increase will decrease Ontario cash grain prices precipitously. Of course, it works both ways but at these current levels it’s unlikely to go down further.
Old crop corn basis levels are $1.00 to $1.22 over the July 2023 corn futures on Apri1 21st across the province. The new crop corn basis varied from $1.06 to $1.25 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.71 cents to $4.80 over the July 2023 futures. New crop soybeans basis levels range from $3.75-$3.93 over the November 2023 futures. Ontario SRW wheat prices are in the $7.84 range. On April 21st the US replacement price for corn was $9.02/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Grain markets have been weak. There still is that natural divergence between old crop and new crop markets, but prices have been weakening since January the 1st and it may not be over. The big Brazilian crop is almost all in the bin now and their Safrinha corn crop looks excellent so far. Keep in mind that crop prices and crop conditions are never linear, there surely will be hiccups in both price and production going forward.
There is also El Nino, the global weather pattern which generally means good crops and good times for North American agriculture. In many ways this has been factored into the new crop market as traders are expecting a good crop based on that. However, at the same time the Pacific Decadal Oscillation or PDO is negative. The last time we saw a transition from La Nina to El Nino with a negative PDO was in 2012, where a devasting drought swept through the Midwest. Some analysts are saying stay tuned for a rerun in 2023.
That might be a bullish gold nugget, but we know the market has been playing the bearish side lately. For instance, with USDA saying 92 million acres even if we lose a couple million acres because of snow in the upper Midwest plains, it could still be very likely that we get a 15-billion-bushel corn crop. Yes, the algorithms have this all-dialed in. You might think of it as everybody’s on one side of the boat now. Will there be a tipping point or will they simply be right about this upcoming growing season.
It is a mixed bag and on the demand side of the equation we are hoping for better things. For instance, in the American corn belt the demand for physical corn is strong. The July 2023 corn futures contract has strengthened 11 cents since March 1st to 37 cents as of April the 19th, indicating strong demand. However, corn exports sales are down 33% from a year ago and ethanol demand has dropped about 3% from a year ago. We will have to see whether these lower corn prices turn this demand picture higher.
Commodity Specific Comments
Corn
Corn has been planted in many of the I states, but currently some producers are wondering if that is a good thing as cold wet weather has inundated that region. As always, it’s hard to know, but this corn market will likely take much more than delayed planting to get some type of life back in it. Corn seems to be too cheap.
With that said, it will likely take some type of crop altering weather in July and august to redefine that narrative on the new crop side of the market. At the present time the Safrinha crop in Brazil looks good and continues to put bearish pressure on the corn market. On top of that, we know that the USDA is predicting a 92-million-acre corn crop this year. It all adds up to more and more corn.
The July 2023 corn futures contract is currently $0.63 greater than the September 2023 contract, which is a bullish indication of old crop corn demand. The December contract is currently priced 8 cents below the March 2024 contract, which is considered a bearish indication of new crop demand. Seasonally, corn prices tend to peak in early June and bottom out in early October. The new crop futures contract is currently in the 51st percentile of the past five-year price distribution range.
Soybeans
On the soybean front we have the tale of two markets with the old crop side holding up better than the new crop side. Needless to say, we have seen both sides of the market go down in price with the new crop side in the $12.85 range and possibly looking to go even lower. Much will depend in the United States on the EPA decision on biodiesel coming in June. An earlier decision added surprised the market by limiting bean oil for renewable diesel opportunities. If this is reversed in June it could add stimulus to US soybean demand.
Of course, we know that Brazil had another record soybean crop at 154 million metric tonnes. China might have an insatiable appetite for Brazilian soybeans, but then again maybe it’s a little bit more lukewarm than we think. It would not be unusual that some Brazilian soybeans turn up in the American southeast in the near future. In fact, will they turn up in Quebec ports? That’s how dominant Brazil is becoming in the soybean trade.
The July 2023 soybean futures contract is currently 58 cents above the August 2023 soybean futures contract, which is an indication of bullish old crop demand. The November 2023 soybean contract is currently priced 4.25 cents below the March 2024 soybean contract which is a neutral to bullish indication of commercial demand. Seasonally, soybean prices tend to peak in early July and bottom in early October. The new crop futures contract is currently in the 61st percentile of the past five-year price distribution range.
Wheat
It seems that everybody is mad about the wheat market, at least on this side of the world. We have become accustomed to the wheat price partially being set in the United States, but with Russia having 105 million metric tonne wheat crop last year they’re undercutting the world and selling for discounts to China the Middle East and other places. It won’t last forever as Russia will have a more normal crop coming this year. However, it’s special discounted situation on the world stage is dominating cash prices almost everywhere, including Ontario.
That doesn’t bode well for Ontario wheat prices especially at a time when we have record acreage of Ontario wheat. Good weather in mid to late April saw much or all of the Ontario wheat side dressed with nitrogen. It looks very good. The challenge for Ontario farmers will be to price that wheat with last year a distant memory. It’s unlikely we’ll get $15 wheat again, but never say never. $8 a bushel Ontario wheat might be the compromise.
The Bottom Line (cont.)
Prices have gone into negative territory over the last several weeks but of course one of the redeeming factors for Ontario grain producers is the continued low value of the Canadian dollar. It almost seems like a broken record, and it will change someday but the dollar in the 73 cent US range continues to add stimulus to Ontario cash grain prices. Clues always lie with American interest rates as well as the value of the American dollar. All eyes will be on the US federal reserve and their upcoming interest rate announcement. As is, any spring rally combined with this low dollar level might represent an opportunity for standing grain pricing orders to hit.
There remain geopolitical concerns globally in our grain complex. On May the 18th the Ukraine Russia Turkey grain agreement comes to an end and of course the world will wonder whether Russia will agree to it again. Keep in mind that Russia is selling a lot of wheat, and this is still a hot war. It represents a wild card in the markets that we cannot predict or measure. We’ve even seen countries like Poland Bulgaria, Romania and others resist the import of Ukrainian grain as you could just imagine what their local basis levels are doing. Their farmers are very angry. It just shows you how complex a hot war can antagonize normal grain movement. Our price of grain will remain captive to the wartime influences within the Black Sea grain growing area.
In Ontario the auto steer buttons are about to be pressed. It’s go time for planting in a year ahead with all kinds of production and price risk. To capture good marketing opportunities in such a fluid environment standing pricing orders resting at your elevator or local processor will go a long way to mitigating much of this risk. Keep in mind all of the grain fundamentals are set for big crops. However, the road to a big record harvest in North America will certainly be lined with unknown variables which we cannot see. Will grain production be compromised this year in North America? The challenge for Ontario producers is to measure all of these variables, weigh it against our foreign exchange and make the best decisions possible. There will be many marketing opportunities ahead. Daily market intelligence will remain key.
