Market Trends Report – March & April 2024
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US and the World
It is almost like last fall has never left. Across Canada it was the warmest winter on record with temperatures averaging 5° warmer than normal. Of course, with some of these March days feeling a bit warmer even more than normal you couldn’t blame farmers for feeling spring is just right around the corner. In fact, there has already been some field work done across the Great North American corn belt. It makes one wonder how this will all manifest itself in the crop growing regions of North America this year.
We will surely find that out in the weeks and months to come and hopefully we’ll have the prices to go with it. On March 8th the USDA came out with their latest WASDE report. The March report is often not as significant as the perspective plantings report at the end on the month. This report was no different with no major changes for corn wheat and soybeans. The old crop production number still sits at 15.342 billion bushels for corn, the same as February with ending stocks at 2.172 billion bushels. All the corn demand estimates such as food, seed and residual and ethanol were the same from February. Total usage was set at 12.455 billion bushels. USDA estimated Brazil’s corn production at 124 MMTs with exports at 52 MMTs.
On the soybean side there was much interest in how USDA would cut Brazilian soybean production as Conab, and other private firms have been consistently lower than USDA. USDA did not budge on their resistance to cut the crop further only cutting it 1 MMT down to 155 MMTs. USDA also left the supply and demand balance sheet for domestic soybeans the same as February. Total US domestic use is set to come in at 4.144 billion bushels, with 2.3 billion bushels to fill crush demand and 1.72 billion bushels going to the export market. USDA increased Russian wheat production up to 91.5 MMTs up slightly from last month. Ukrainian wheat production was unchanged from February.
On March 8th, corn and soybeans futures were higher and wheat futures were lower than the last Market Trends report. May 2024 corn futures were at $4.39 a bushel. The March 2024 soybean futures stood at $11.84. The March 2024 Chicago wheat futures closed at $5.37 a bushel. The Minneapolis March 2024 wheat futures closed at $6.62 a bushel with the Sept 2024 contract closing at $6.71 a bushel.
The nearby oil futures as of March 8th closed at $78.01/barrel up from the nearby futures recorded in the last Market Trends report of $76.84/barrel. The average price for US ethanol in the US was $2.02, slightly below the $2.04 a US gallon recorded in the last Market Trends Report.
The Canadian dollar noon rate on March 8th, 2024, was .7423 US, down slightly vs the .7431 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
Field work in early March? Yes, it was a bit hard to believe but there were several instances of fields being worked across much of southern Ontario in the early parts of March as the mild Canadian winter continues. In fact, winter wheat has broken dormancy in most areas of the province and some producers who split nitrogen application we’re thinking of putting a little bit on to get things started. As it is, the Ontario wheat crop looks pretty good going into spring.
Ontario corn basis levels are slightly lower than they were a month ago reflecting the relative abundance of old crop corn held across Ontario. This is happening despite Ontario Dec 31st, 2023, corn ending stocks at all locations being lower than the year before according to Statistics Canada. There is lots of cheap corn on the world market, which may hinder export this spring. However, cheap is the great equalizer. We still have preferential trade treatment into the UK and Ireland.
The Canadian dollar has been volatile within a one cent range over the last month now at .7423 US. This helped keep the soybean basis level fairly constant versus last month although futures have been slightly higher. Needless to say, this low Canadian dollar will remain a stimulus to Ontario grain prices.
Old crop corn basis levels are $0.35 to $0.65 over the May 2024 corn futures on March 8th across the province. The new crop corn basis varied from $.80 to $1.10 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.91 cents to $3.25 over the May 2024 futures. New crop soybeans basis levels range from $2.71-$3.05 over the November 2024 futures. Ontario SRW wheat prices are in the $6.45 range. On March 8th the US replacement price for corn was $5.93/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
It has been a long and winding road to get to where we are now. How much more punishment can this market take? Yes, there are signs that things have turned around, but we should never forget how we got here. After some very good prices of the last two years big supply has won the day. Ending stocks are higher than the markets have become accustomed to, and grain is cheaper at foreign ports. Somewhere in the distance there is a butterfly fluttering within the future grain price story which will change the tide of sentiment in these bearish markets. Getting there will probably take more time than many of us have patience for.
We’ve grown accustomed to China being the savior for agricultural demand, but there is a little bit of unease with regard to China. They have pulled back purchases of soybeans in the first two months of 2024. It is likely because Brazil is 50% harvested and selling aggressively to China with lower prices at Brazil ports. Of course, we’re also concerned that the Chinese economy isn’t what it has been. There is really no room for any hiccup in the Chinese economy when it comes to maintaining agricultural demand from the Middle Kingdom.
We need increased demand to push prices higher. Keep in mind that our feed demand has some headwinds. In the United States the number of cows and calves inventory levels are the lowest since the early 1950s. The US cow herd is the lowest since the early 1960s. US hogs numbers have also declined, while hog prices have increased. So, it’s difficult to see this sector giving us the corn demand that we need. A renaissance in American (or Canadian) livestock production might be the order of the day.
As we move ahead weather conditions will have an increasing role in our grain price picture. The mild winter has created conditions for early planting but at the same time colder weather is predicted for the end of March into early April. We are also seeing a changing global weather pattern to a La Nina in the Pacific. In 2024, weather markets will be a thing.
Commodity Specific Comments
Corn
The USDA report did not move the needle on corn but as of March 8th nearby corn futures had closed above their twenty-day moving average for the first time since December the 15th. Funds have been short corn for a long time now, aggressively so and this may be a sign that the trend is ending. However, it’s going to be tough with ending stocks at 2.172 billion bushels.
What’s needed is an infusion of demand and you must remember that cheap prices build demand and higher prices destroy demand. Mexico is a big buyer of US corn and that will continue. Realistically it is difficult to see an increase of 400 to 500 million bushels of corn demand needed to raise prices significantly higher. Supply will have to be curtailed somewhere.
The December 2024 corn contract is currently priced at 12.5 cents below the March 2025 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 December 2024 futures contract is at the 34th percentile of the past five-year price distribution range.
Soybeans
The nearby soybean contract closed above its twenty-day moving average for the first time since November 22nd post USDA report on March 8th. The non-commercial money has been short soybeans for quite some time, and this turn around might mean that soybeans could see better days ahead.
Brazil is over 50% harvested of their soybeans as we keep bouncing around the $11.50 nearby futures level. Seasonally, we tend to go lower in late February and start gaining in March. Market action on March 8th was positive post report, hopefully higher prices are ahead. You’d think the funds would be growing increasingly antsy with their short positions especially headed into spring.
The November 2024 soybean contract is currently priced 6.5 cents below the March 2025 contract which is considered neutral to bearish for new crop beans. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The November 2024 soybean contract is currently at the 47th percentile of the past five-year price distribution range.
Wheat
The wheat market has been in a bit of a tailspin over the last several weeks as the short covering of the funds turned into selling again. We also had China canceling several shipments of American wheat into China which led to the downward price movement. Russia continues to heavily discount their wheat into traditional markets. US wheat growing conditions are some of the best we’ve seen in the last five years.
Unfortunately, much of these global conditions have caused my angst for Ontario wheat producers as our prices have retreated into March. The Ontario crop does look good and nitrogen application will ramp up in early April. Wheat is high risk, as it’s the only crop we expose to four different seasons. At these cash prices producers will need to enact the tighter agricultural economic criteria to ensure profitability in 2024.
The Bottom Line (cont.)
In March, the Bank of Canada’s kept interest rates the same, when many analysts were expecting an interest rate cut. On que, the Canadian dollar gained 42 basis points to close at .7398 US its largest one day move since December the 13th. It’s been fluttering in the 73/74 cents US level for several weeks now. The Canadian dollar value usually moves in an inverse fashion to where the US dollar goes, but sometimes an unexpected Bank of Canada move does make a difference. Needless to say, that rise in the Canadian dollar value is not good for Ontario and Quebec cash grain values. It cannot be said enough that our foreign exchange rates and its effect on cash basis levels is always with us as Eastern Canadian farmers.
If it hasn’t happened already, it is surely happening in the minds every farmer across the corn belt and that is this coming growing season. There is always much anticipation in the market for the perspective plantings report which usually comes out at the end of March. This year it will come out on March 28th when we will get the official opinion of the USDA on the number of US crop acres we have for this year. Earlier, at their February outlook conference the USDA had predicted 91 million acres of corn and 87.5 million acres of soybeans in 2024. There likely will be similar numbers on March 28th, quite a departure from last year when we had 94.1 million acres of corn and 83.5 million acres of soybeans in the United States. March 28th might be a big market mover for prices. Often, there are surprises in the numbers.
Although there are large negatives this year for lower prices based on big supply winning the day, keep in mind that those same negatives are busy building demand now and into the future. Hedge funds can’t be short forever in agricultural commodities. There surely will be better days ahead.
We still have many of the same geopolitical problems impacting our grain prices as we’ve had over the last few months. That will continue along with others which surely will spring up in the days to come. The challenge for Ontario grain farmers is to continually balance and manage our risk management spectrum when it comes to marketing. It’s important that we keep our vision clear and focus on what is in front of us. Eventually in 2024 the last rows of corn will disappear in front of the combine. Getting there will surely be a journey, one where risk management never grows old. There will be many marketing opportunities ahead.
