Market Trend Commentary – November & December
U.S and the World
Combines have been rolling throughout the American corn belt, Ontario and Quebec. Harvest weather, as always presents challenges for farmers and 2019 continues to go down as a year to remember. Rain and snow have inundated much of the American corn belt, slowing harvest. This is on top of a crop, which was planted late and not as mature as it usually is this time of year. As of November 4th, 52 % of American corn had been harvested versus 74% last year. On November 3rd, 75% of American soybeans had been harvested compared to 81% a year ago.
On November 8th, the USDA released their latest WASDE report. In a move that didn’t surprise the market, both corn and soybean yield estimates were reduced but were within the pre-report expectations. USDA projects American farmers to harvest 13.67 billion bushels of corn, based on a national yield of 167 bushels per acre. This estimate is less than last month by 1.4 bushels per acre, a 100-million-bushel reduction in supply. Unfortunately, this didn’t result in a reduction of ending stocks, (1.91 bbu) as feed and residual and ethanol demand dropped 25 million bushels. US exports were also reduced by 50 million bushels. The US stocks to use ratio was 13.7%, which is less than last year of 14.6%. Globally corn stocks declined for 2019/20 to 296 MMT, which is down 6.5 MMT partly due to the lower production forecast.
USDA pegged US national soybean production to come in at 3.555 billion bushels, based on a US national yield of 46.9 bushel per acre, the same as last month. Harvested acres were maintained at 75.6 million acres. This is below last year’s national yield of 50.6 bushel per acre. USDA increased soybean endings stocks to 475 million bushels, as domestic crush was down 15 million bushels. Globally, ending stocks were slotted in at 95.42 MMT, which is up slightly from October. Brazil’s production is pegged at 123 MMT, while Argentina is projected at 53 MMT. Planting season is in full swing in South America. US Wheat production was kept the same as last month at 1.92 billion bushels.
On November 8th, corn, and soybean futures were lower from the last Market Trends report. Wheat futures were slightly higher. December 2019 corn futures were at $3.77 a bushel. The January 2020 soybean futures were at $9.31 a bushel. The December 2019 Chicago wheat futures closed at $5.10 a bushel. The Minneapolis December 2019 wheat futures closed at $5.16 a bushel with the September 2020 contract closing at $5.24 a bushel.
The nearby oil futures as of November 8th closed at $57.24/barrel down from the nearby futures of last month of $54.70/barrel. The average price for US ethanol on November 8th in the US was $1.71 a US gallon lower than the $1.79 recorded in the last Market Trends report.
The Canadian dollar noon rate on November 9th was .7563 US, slightly lower than the .7577 US reported here last month. The Bank of Canada‘s lending rate remained at 1.75%.
Ontario
In Ontario harvest continues. It has been eventful. Soybean harvest has been all over the place concerning yield. There have been some excellent yields, but also below average results especially in the deep southwest of the province where many soybeans were planted toward the crop insurance deadline of July 5th. Much of the soybean crop has been harvested, but many acres remain in eastern Ontario and other parts of the province. Complicating matters was widespread snowfall on November 6th which drew harvest to a halt for much of the province.
Up until the end of October, good weather had helped soybean harvest across the province, helping wheat planting. It is likely to put final Ontario wheat acreage close to the 1 million mark, something that hasn’t been achieved in quite a few years. At the same time, corn harvest commenced across the province, with yields above average. Much of this is surprising based on the tough conditions it was planted in. However, snowy weather has stopped harvest across much of the province as of November 6th. A battle might ensue to get this crop in the bin if the snow continues. More good weather is needed.
Corn basis has been maintained over the last few weeks in Ontario despite harvest pressure. However, with snowy weather inundating both Ontario and Quebec, this may change. Producers might be caught in a “Catch 22”, snow in the field, pushing basis, but unable to get at it. Weather is always a wild card, but snow can cause issues at this time of year in Ontario. A sloppy basis may result, and it will be up to farmers to keep a vigil on basis as this harvest continues. The hope is to get everything harvested, but in some parts of Ontario, recent snows might push harvest into winter. The Canadian dollar fluttering in the 75-cent level continues to support Ontario grain prices.
Old crop corn basis levels are $1.25 to $1.40 over the December 2019 corn futures on November 8th across the province. The new crop corn basis varied from $0.90 to $1.10 over the December 2020 corn futures. The old crop basis levels for soybeans range from 2.10 cents to $2.21 over the January 2020 futures. New crop soybeans range from $2.10-$2.17 over the November 2020 futures level. The GFO cash wheat prices for delivery to a terminal on November 8th were $7.21 for SWW, $7.41 for HRW, $7.08 for SRW and $6.46 for Red Spring Wheat. On November 8th the US replacement price for corn was $5.89/bushel. You can access all of these Ontario grain prices on the Daily Commodity Report.
The Bottom Line
The USDA can sometimes be the purveyor of demand truth and that is one of the biggest takeaways from the November 8th USDA report. Poor demand for US corn is hurting prices. While farmers are often focused on big supply and yield numbers, declining demand numbers are like a slow leak in a tire. It continues and for prices to be effervescent again, it needs to be stopped. With possibly 4-5 million more corn acres projected for next year’s US production fields, corn demand needs to be put under the microscope. New American corn business is needed.
It is a bit of a tall order. At one time, biofuel provided such a growing demand story. However, it’s been under threat from the present American administration, which has been unfriendly to American agriculture. Brazil, Argentina, and the Black Sea area continue to take away American corn exports. Cheap is always the great equalizer, but of course, nobody wants to go there. Needless to say, competition in the global corn market is growing, partly fostered by what is seen as a hostile American administration to trade. South America has hugely benefited, and it continues.
The China-US proposed trade deal continues to be the poison pill for the soybean market. Predicting that is difficult as now a step by step phased in a trade deal is being considered with agriculture being part of Phase 1. The hope is to get rid of the 25% tariff on American soybeans headed toward China. That would help level the playing field. However, the glory days of China-US soybean trade are over, regardless of what happens on the trade front.
There are still major questions on the supply numbers in the United States. Many analysts are expecting a reduction on the soybean number going into January, not so many expect that with corn. However, the weather might play a more significant role in those numbers depending on if mother nature plays nice. The yet to be talked about the issue with US corn is test weight. In the United States, corn is generally lighter than usual, which will ultimately show up in yield numbers.
Commodity Specific Comments
Corn
The corn yield number is still in flux, with USDA reducing it to 167 in the November 8th report. The production number was friendly to prices, but corn demand remains a huge problem. When you reduce almost all facets of demand, the problem continues and makes it hard for prices to do anything but tread water. December corn has refused to breach the $3.75 market so far. However, if it does, it’s a long way down to summer lows.
Keep in mind, the weather is troubling and frustrating for farmers. It’s been frustrating for some American merchandisers too. In Illinois, where harvest is usually done, it continues, with some elevators offering free drying under 19% corn just to get delivery. Simply put, the weather is holding up harvest which is causing issues. This is an aside to the lower “test weights” which are evident in much of the American corn crop.
The December 2019 March 2020 corn futures spread is -.0925, which is considered bearish. Seasonally, corn prices tend to go higher into December and the spring. The December corn contract is currently in the 47th percentile of the past five-year price range.
Soybeans
The USDA report was expected to be bullish, but it didn’t turn out that way. With no change in harvested acres and yield, USDA is likely setting us up for that final USDA report in January when the crop might be harvested. Ending stocks increasing 15 million bushels was not part of the narrative. Snow in the beans as of November 8th only added some intrigue to this final story.
The dance surrounding a trade agreement with China continues and it is quite a dance. Almost every day, there are reports that a Phase 1 deal will be done, possibly including American agriculture with a signing ceremony in Iowa. The market has grown numb to this narrative. However, it’s likely to happen when you least expect it. Needless to say, the Brazilians are ramping up planting another record crop. Stay tuned.
The January 2020 March 2020 soybean futures spread as of November 8th is currently -.13 cents, which is considered bullish. The January contract is currently priced in the 31st percentile of the past 5-year price range. This is the highest in 2019. Seasonally, soybean prices tend to trade higher into winter and spring.
Wheat
The November 8th USDA report should have been bullish for wheat, but it didn’t turn out that way. Spring wheat numbers were reduced in almost every category, with almost a million harvested acres reduction. However, per usual in wheat, there was a reduced demand forecast and foreign players coming into play. Australia and Argentina have lower wheat numbers, but this is being replaced by Black Sea production. The world of wheat is so fluid. There is always a hole to plug and it usually always gets plugged from a world where wheat is grown almost everywhere.
In Ontario, there is good news, as much wheat was planted, possibly 1 million acres. It’s a long way until payday of course. A turnaround in November weather would surely be helpful as snow and cold temperatures are not helpful. A run of above normal November temperatures would not only help the wheat but help farmers finish harvest too.
The Bottom Line Cont.
The Canadian dollar continues to flutter between 75 and 76 cents, which continues to be a stimulus for Ontario grain prices. It has become such a default over the last several months, it’s taken for granted. The Bank of Canada has maintained its interest rate at 1.75%, which has been helpful. However, the Americans recently cut rates, which will put pressure on in Canada and would be negative for the loonie. As per usual, it’s always hard to say, and farmers must be prepared to manage the Canadian dollar variation in our flat pricing Canadian world. Ontario corn prices above $5 and soybean prices above $1.40 exist partly because of the Canadian dollar.
Clearly, as of November 10th, we’re not out of woods with this Ontario crop as the snow had inundated much of Ontario farm country. If the weather turns kind, it’s likely the Ontario corn crop might push above 170 bushels/acre again. It’s also true if the Ontario weather remains ugly, we fall short of that crop. Needless to say, the big crop will need to find a home and the basis might reflect that. Competition for Ontario export corn is tough, just like any other place. Ontario soybeans need to get out of the snow. We all know that. Good weather for the end of November is needed.
Geopolitics will continue to impact our markets. Aside from the US-China trade issues, Canada and China relations come to the fore. Recently it was announced the Chinese were again buying Canadian beef and pork. Canola and soybeans need to be on that list and with the election over here, hopefully, there is some fresh news on that front. Other geopolitical concerns are still very apparent with Brexit and the Middles East. There is still North Korea, but that has been quiet lately. Trade headlines in the US will certainly continue to impact daily market action.
Going into December, the futures market is often quiet, especially with the narrative already set. The impact of weather on this year’s crop might change that this year. Certainly, the final USDA report in January 2020 is shaping up as a market mover. Historically, it’s that way. The challenge for Ontario farmers firstly is to get this Ontario crop out of the field. It’s turned into a battle. As we move ahead, there will surely be market opportunities ahead.
Key will be daily market intelligence.
