Market Trends Report – November & December 2023
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US and the World
Harvest is in full swing across the great American corn belt; progress varying depending on where you are. In fact, it is over in many places. As of November, the 6th 81% of US corn harvest has been completed and 91% of soybean harvest. There are variations on the theme with harvest slightly behind last year. However, it had been a big harvest after such an uneven growing season filled at times with smoky skies. On November the 9th the USDA weighed in with their latest WASDE report on how big this crop is.
The USDA increased US corn production up 170 million bushels from last month to 15.234 billion bushels. Yield was raised 1.9 bushels per acre to 174.9 bushels per acre. This puts the 2023 US corn crop in new record territory above the previous record in 2016. Harvested acreage remains at 87.1 million acres with ending stocks for 2023/2024 increased by 45 million bushels to 2.156 billion bushels. Total corn usage is set at 12.390 billion bushels which is up 75 million bushels from last month. Globally, both beginning and new crop ending stocks were raised reflecting A somewhat more bearish global market position for corn.
On the soybean side of the equation the USDA actually raised the yield from last month, up .3 bushels per acre to 49.9 bushels per acre. Harvested acreage was left the same at 82.8 million acres with total production climbing to 4.13 billion bushels. All of these numbers were above pre report estimates. US ending stocks for 2023 and 2024 are now projected to be 245 million bushels which is 25 million bushels higher than a month ago. Globally, world soybean ending stocks are down from a month ago, but the USDA is still forecasting Brazil farmers to harvest 163 MMT and Argentina to harvest 48 MMT of soybeans in this crop year. USDA pegged domestic wheat production at 1.812 billion bushels, unchanged from their October estimate. Globally, wheat production is supposed to go down slightly for this coming year.
On November 11th, corn and wheat were lower and soybeans futures were higher than the last Market Trends report. December 2023 corn futures were at $4.64 a bushel. The January 2024 soybean futures stood at $13.47. The December 2023 Chicago wheat futures closed at $5.70 a bushel. The Minneapolis December 23 wheat futures closed at $7.30 a bushel with the Sept 2024 contract closing at $7.68 a bushel.
The nearby oil futures as of Nov 11th closed at $77.17/barrel down from the nearby futures recorded in the last Market Trends report of $87.69/barrel. The average price for US ethanol in the US was $2.24 a US gallon, down from the $2.46 last month.
The Canadian dollar noon rate on November 12th, 2023, was .7236 US, down versus the .7322 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
In Ontario as of November the 11th soybean harvest is near completion and corn harvest is ramping up across the province. The big challenge over the last 4 weeks has been getting the weather to complete soybean harvest, something that post-thanksgiving was very difficult with grey, cloudy and rainy weather. As it is, soybean yields have been quite impressive across the province although there are some areas where too much water this summer has spoiled the yield party.
Corn harvest is progressing well across the province. The smoky hazy summer has certainly translated into bigger yields but has left challenges with regard to high moisture corn in mid-November. There has also been challenges with Vomitoxins in some areas. Discounts and frustrations abound when this happens. However, Ontario might be setting up for another record harvest this fall.
Ontario basis levels for both corn and soybeans have sustained themselves over the last four weeks. Any drop in the corn basis was partly due to the drop in futures prices. The soybean basis is actually stuck together, and the new crop soybean basis actually increased from a month ago. The Canadian dollar currently hovering in the 72 cent US level has continued to be a stimulus for Ontario cash grain prices
Old crop corn basis levels are $0.75 to $1.10 over the December 2023 corn futures on Nov 11th across the province. The new crop corn basis varied from $.85 to $1.25 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.95 cents to $3.66 over the January 2024 futures. New crop soybeans basis levels range from $3.40-$3.70 over the November 2024 futures. Ontario SRW wheat prices are in the $6.80 range. On November 11th the US replacement price for corn was $6.61/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Big supply has certainly been winning the day and that big supply seems to be growing as 2023 gets older. A case in point is a look at the corn market where we’ve seen December corn hit new lows over the last 10 days six different times going back to September of 2021. It is like it keeps probing trying to reach a level where we will completely reverse that trend.
That’s not so good especially when you consider that the corn crop that was planted in 2023 might have been one of the most expensive ever planted. As it is, basis is tightening in many parts of the United States because producers are not willing to sell at these prices. The USDA did not accommodate things by giving us a bullish number, in fact adding to the production estimates. We need a post-harvest rally, but at the moment it seems unlikely.
Of course, that is guessing, and we cannot predict the future. The reality is though that there seems to be a different fundamental at play between the corn and soybean markets. Corn is pretty bearish as we have discussed earlier but soybeans are not so much, not following the corn narrative. Sure, we’re into a weather market now in Brazil but ending stocks are still relatively tight and demand is dynamic. Replacing physical bushels on paper with call options might be a strategy to take part in future market appreciation on both corn and soybeans.
It is almost a broken record (I’m aging myself), but the geopolitics inherent in the global economy now continue to impact our grain prices. The white-hot war in Gaza and the Ukraine continues to be wild cards with regard to potential price spikes in grain. You might argue that much of the Ukraine Russia dynamic is dialed in especially when you look at market prices, but it can erupt at any time. A wild card within our marketing plan it continues to be.
Commodity Specific Comments
Corn
The November USDA report didn’t do any favors to the corn market by raising yield up 1.9 bushels per acre. This makes the crop better than last year; in fact, it puts it in record territory better than 2016. This was after we thought that the crop was getting shorter. That’s a big reason why corn prices sank last week.
Demand has grown according to USDA but still have ending stocks around 45 million bushels based on our higher production. Demand creation is much harder than demand destruction, which we got last year after our higher prices. It is cyclical and it will come back even more but, in the meantime, lower prices are the clearing house. Corn ending stocks continuing over 2 billion bushels seemed to be the norm for the near future.
The December corn contract is currently priced at 15 cents below the March 2024 contract which is a bearish indication of new crop corn demand. Seasonally, we know that corn prices tend to peak in early June and bottom out in early October. The March futures contract is at the 34th percentile of the past five-year price distribution range.
Soybeans
China has been buying American soybeans, but how long this lasts is anybody’s guess. Every year, China imports about 100 MMTs soybeans getting it mostly from Brazil. However, with that many beans involved invariably they come to the United States at a certain point. Whether this will continue or not will depend a lot on the availability of Brazilian beans currently growing in the field.
The soybean crop in Brazil is 53% planted and there are some analysts that say it is so dry it is about to wither away. However, as all farmers know soybeans can be the great liars and rain will eventually come to these fields like it does in the hottest days of a southwestern Ontario summer. For soybeans, this dryness in Brazil has caused a boost in January futures, characteristic of a weather market based solely on Brazil beans.
The January 2024 soybean contract is currently priced 14.75 cents below the March 2024 contract which is considered bearish. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The July 2024 soybean contract is currently at the 60th percentile of the past five-year price distribution range.
Wheat
Big supply has certainly continued to manifest itself on the wheat market. USDA did not make any earth-shattering changes in their November report, which is very consistent with wheat fundamentals. We have continued to see a white-hot war in Ukraine and Russia but that seems to make no difference anymore as algorithms have those problems dialed in. Recently, we have seen wheat trade over its 50-day moving average so let’s hope all the selling pressure has stopped. However, we must remember wheat is either planted or harvested every month of the year around the world. Big wheat supply just keeps winning.
In Ontario it has been an uneven wheat planting season. Earlier, in late September early October we experienced very warm weather giving wheat planting a boost. However, after thanksgiving the weather turned against wheat planting for much of southwestern Ontario. This will likely mean much less wheat being planted in the fall of 2023 than there was last year. As it is, the Canadian dollar remains a stimulus for wheat prices both now and into next July.
The Bottom Line (cont.)
The Bank of Canada has maintained their base interest rate of 5% for the immediate future. However, they have also warned Canadians that interest rates are likely to stay higher than what they become accustomed to over the last few years. This is based on many factors including possible higher energy prices based on the geopolitical problems in Israel and Gaza. They also refer to other major global market forces that were pushing down interest rates abating. This all has an effect on the Canadian dollar which has been fluttering in the 72 cent US level for several weeks now. It continues to be stimulus for Ontario grain prices.
The situation is fluid as always when it comes to the Canadian dollar and Ontario grain prices. Basis is a reflection of the value of grain when it is moved. That means that any movement in the Canadian dollar has a wide-reaching effect especially on soybeans and wheat. While the dollar now is at 72 cents US if it was at $0.92 US, we would have negative basis levels on grain prices in Ontario sending us into cash levels not seen for over 20 years. Will it happen? Yes, it will come as never is a long time and we have seen it before, but it certainly doesn’t look likely soon. Balancing our grain selling between good futures prices and good basis levels will continue to be our number one challenge.
In the next few weeks corn harvest will probably ramp up even more in Ontario. At the same time in Brazil soybean planting will continue as producers look to the sky for much needed rains. In both cases there is lots of risks to consider, quality issues in Ontario and of course weather anomalies down in the southern hemisphere. This certainly could raise the potential for price spikes and market opportunities in the next few weeks. Daily market intelligence will remain key.
It has been a long and eventful growing season in Ontario and beyond. As November grows older, it is become very evident that the smoky and hazy summer did many things, but one thing it did was create the environment for bigger crops in North America. Ditto for Ontario. Every year is different and certainly as 2023 gets older we need to measure exactly all of these market factors that have weighed in on grain prices this year. Once again, it’s time to re calibrate those grain marketing plans. Change is our only constant. There will be many marketing opportunities ahead.
