Market Trends Report – August & September 2024
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US and the World
It is that time of year when the crop is made. In other words, we got the crop planted and we got through the “hot and dry” timeline and now we’re in the middle of August heading towards September. The weather in August has been benign with mild temperatures and adequate moisture to keep the crop in the US Midwest going. There still could be some surprises but much of the drama is in the review mirror. We are looking at record crops coming out of American fields this year.
On August 12th the USDA came out with their latest WASDE report. In this USDA report, we got details of a bin buster coming this fall. The USDA estimated corn production to come in 15.147 billion bushels which is up 47 million bushels from July. USDA actually lowered planted acreage to 90.7 million acres in the calculation based on 183.1 bushels per acre. This of course would be a new record. Corn ending stocks were set at 2.073 billion bushels which is a decline of 24 million bushels from July.
Soybeans were estimated to come in at 4.589 billion bushels which was way above the previous report estimates. The USDA actually increased its planted acreage by 1,000,000 acres with a yield forecast of 53.2 bushels per acre. Like corn, this is another record American crop. The new crop soybean ending stocks are projected to come in at 560 million bushels, which is the highest in six years. USDA wheat production was set to come in at 1.98 billion bushels after reducing planted acreage to 46.3 million acres.
On August 16th, corn, soybeans and wheat futures were lower than the last Market Trends report. September 2024 corn futures were at $3.70 a bushel. The November 2024 soybean futures stood at $9.57 The September 2024 wheat futures closed at $5.30 a bushel. The Minneapolis September 2024 wheat futures closed at $5.93 a bushel with the July 2025 contract closing at $5.89 a bushel.
The nearby oil futures as of August 16th closed at $76.65/barrel down vs the nearby futures recorded in the last Market Trends report of $80.13/barrel. The average price for US ethanol in the US was $2.16, below the $2.20 a US gallon recorded in the last Market Trends Report.
The Canadian dollar noon rate on August 16th, 2024, was .7296 US, up vs the .7285 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate was reduced to 4.5%.
Ontario
Generally speaking, crops across Ontario are variable and likely a little bit less on average than last year because of the wet weather we’ve experienced in 2024. There are some areas in Eastern Ontario and Niagara which have done well all year. There are other areas like the deep southwest of Ontario which suffered crop damage early, which will be tough to recover from. Needless to say, rain continues in August and it should really benefit the soybean crop moving ahead.
We’re always looking for new things for Ontario agriculture and we’re seeing that in Prince Edward County with the announcement August 15th of a new bulk agricultural marine terminal being built in Picton. These developments along with newer grain facilities such as those in south Essex and other locales can only benefit Ontario grain farmers.
Basis levels have eroded slightly since the last Market Trends report. However, Canadian dollar continuing to flutter under $0.73 US does provide a stimulus for Ontario cash grain prices. It is likely that Ontario corn acres are actually below 2 million this year and with a degraded crop this might set up the likelihood to go to import basis values in 2025. On top of that there is more soybean acres meaning soybeans will need to be exported like they were last year into Europe and Iran. Some of this might come up front in December as Europe has a new rule post December 31st of no soybeans being imported from newly deforested land.
Old crop corn basis levels are $0.80 to $1.25 over the September 2024 corn futures on Aug 16th across the province. The new crop corn basis varied from $.85 to $1.21 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.92 cents to $3.10 over the November 2024 futures. New crop soybeans basis levels range from $2.42-$2.75 over the November 2024 futures. Ontario SRW wheat prices are in the $6.30 range. On July 19th the US replacement price for corn was $5.55/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
The crop in the United States is simply huge this year. Of course, all farmers know we have seen record crops before and lower prices. It’s easy to become emotional at these times and think well maybe the crop is not there. However, the sentiment in the market is the opposite of that and with each day we get closer to that reality. That’s a big reason why prices seemed to have no bottom.
What’s it going to take to break this bearish trend? That question is asked because we know markets are fluid and they never stay the same. It is likely that what will happen is not necessarily on the demand side but a production shortage in South America come December or January. These ending stocks are just too large to ignore. Getting production to go down through some type of weather related South American calamity will soon be on the clock
Aside from a weather calamity in South America there is also geopolitics which for the most part the market has dialed in. The Russia Ukrainian hot war continues with a Ukrainian incursion into Russia. We cannot know how this will end but the possibility exists a Black Swan moment coming out of it. It’s been remarkable how grain has flowed out of that region over the last two years. However, a hotter war always holds a possibility that it might change abruptly.
“Cheap” is always the kryptonite for agricultural demand and we’re certainly there. In other words, the spectre for increased demand from these cheaper grain price levels are real. Old crop corn demand out of the United States is up 34% from a year ago and FOB corn prices remain cheaper than Brazil at the US gulf. American soybean prices at the gulf are cheaper than Brazilian prices. This all sets up to boost demand further.
Commodity Specific Comments
Corn
USDA says we have a record crop in American fields so it must be true. However, there is not a lot of complaints about yield this year outside of Ontario and we could be looking at a bin buster like never before. It brings up the spectre that the harvest low might take a while this year and prices might have to move even lower. Crop science and genetics is certainly going to tell a story this year where the weather was benign.
Keep in mind that 2-billion-bushel corn carryout justifies $4.00 corn futures. However, we are below that now with much old crop corn to sell in the United States. Looking back, we can definitely say that rain makes grain despite some areas of the country being waterlogged for most of the spring and early summer. Needless to say, “cheap corn” represents an opportunity for demand to build into September October and November.
The December 2024 corn contract is currently priced at 18.55 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 16th percentile of the past five-year price distribution range.
Soybeans
Soybeans might be the great liars but at the end they always tell the truth. USDA came in with a 560 million ending stocks figure which was more than anybody could have imagined. This is the largest ending stocks figure that we have seen in the last six years with the resulting lower prices.
At the present time Chinese purchases of American soybeans is at approximately 1 MMTs, while last year this was 4 MMTs. At a certain point as soybeans go lower and this crop comes in China is likely to purchase at these lower prices representing very good value. Looking ahead, it’s going to take a weather issue in December or January in South America to spark these soybeans higher.
The November 2024 soybean contract is currently priced 35 cents below the March 2025 contract which is considered a 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 17th percentile of the past five-year price distribution range.
Wheat
The USDA report showed us that global ending stocks for wheat continue to trend lower. This is approximately the fourth year in a row that global ending stocks have been trending lower. However, the wheat market has responded with a collective yawn to all of this. This typifies the wheat market where it is grown almost everywhere and until there is a dire shortage in one of the major players the wheat price stays low. Even renewed fighting in Russia and Ukraine has not change the wheat price paradox.
However, you would think at a certain point the wheat price would start to percolate with lower global stocks and quality issues at places such as France. This would only help Ontario producers who are stuck with a wheat prices in the $6.30 a bushel range. With the wheat harvest behind us in Ontario farmers will be looking toward the fall hoping for better weather to plant wheat than they had in 2023. However, low price prospects are certainly challenging that assumption.
The Bottom Line (cont.)
The Canadian dollar continues to flutter just under $0.73 US which will always serve as a great default for Ontario grain prices. Without that Ontario cash price levels would be much lower than they are. As it is it is certainly challenging for Ontario farmers to deal with the lower prices. Higher rents that we’ve seen over the last few years are not penciling out as we look into 2025
Have we been here before? Sure, we have, but of course that depends on how long you have farmed. A similar year to this would be 2014 where we had lower prices as surpluses built. To get through this we will not only have to watch futures prices and the value of the Canadian dollar but also the Bank of Canada interest rate announcements. In their last announcement they reduced the interest rate to 4.5% which is bearish for the Canadian dollar. With inflation currently under 2.8% it is likely that the Bank of Canada cuts interest rates again by the end of the year. Ontario grain farmers will certainly be watching.
Non-commercial interests in the agricultural commodity markets remain keen on the short side which has a had a big influence on these prices going down. Currently in the United States the national cash index is approximately $3.64 for corn. The question is how much lower it might go with this fund activity. On the soybean side of the ledger November soybeans have lost about $1.90 or roughly 17% Of its value between the spring and summer seasons. These are serious numbers, and we should not lose touch of how bearish this scenario is.
Having said that sometimes it’s darkest before the dawn. Of course, we’re not sure that it is the darkest now but there will be another day, another crop and another opportunity to price grain. We got here with our eyes wide open. The challenge for Ontario grain producers is to balance all of these marketing factors within this bearish market environment and seize opportunity when it emerges. And it will emerge. There will be many marketing opportunities ahead.
