Market Trend Report for August & September
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US and the World
Into the dog days of summer, we go. Across the great American corn belt, crops are progressing toward harvest. This crop looks to be one for the ages as no major weather event has slowed its progress during the growing season. However, Derecho winds which swept through much of the Midwest on August 10th, compromised millions of acres of corn. The impact of that will need to be measured further, but likely not until combines slowly roll through it. COVID-19 remains very real and continues to have a big impact on grain markets. The USDA weighted in with their latest WASDE report on August 12th.
In the report, USDA reported American farmers can expect a record corn harvest of 15.3 billion bushels coming off this fall based on a record yield projection of 181.8 bushels per acre. This was up 12% from last year. This pushed 2020/21 corn ending stocks to 2.76 billion bushels an increase of 10 million bushels from last month. Old crop ending stocks came in at 2.29 billion bushels putting corn in an increasingly comfortable spot. Global corn stocks increased on the bigger American production.
The USDA soybean estimate came in at 4.42 billion bushels with a record national yield of 53.3 bushels per acre. Last year American soybean yield came in at 47.4 bushels per acres, so much less than what is estimated this year. If realized, this year’s crop will top the soybeans crop of 2016-17 of 52 bushels per acre. This new crop estimate pushed new crop ending stocks to 610 million bushels, up from the 425 million bushels estimate last month. The old crop soybean ending stocks were decreased 5 million bushels to 615 million bushels. USDA wheat production estimates were up from last month at 1.84 billion bushels. However, SRW wheat, which is most of what is grown in Ontario was down 3 million bushels at 277 million bushels.
On August 15th, wheat and corn futures were lower than the last Market Trends report. Soybean futures were the same. September 2020 corn futures were at $3.24 a bushel. The November 2020 soybean futures were at $8.98 a bushel. The September 2020 Chicago wheat futures closed at $5.00 a bushel. The Minneapolis September 2020 wheat futures closed at $4.97 a bushel with the September 2021 contract closing at $5.51 a bushel.
The nearby oil futures as of August 15th closed at $42.01/barrel up from the nearby futures of recorded in the last Market Trends report of $40.59/barrel. The average price for US ethanol on August 15th in the US was $1.51 a US gallon down from the $1.58 recorded in the last Market Trends report.
The Canadian dollar noon rate on August 14th was .7547 US, higher than the .7367 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
In Ontario wheat harvest is into the final stages in Eastern and Northern Ontario. Wheat quality and yields were good, lots of fields running from 80-110 bushels in many fields. With such a big geographic area in Ontario, you’ll always have wide variability. There were issues with drought, insects, and even too much rain. However, all in all, many farmers appreciated the opportunity to harvest wheat in 2020 after such an off-wheat year in 2019. Rotation is so important.
Basis levels have retreated in Ontario for soybeans and wheat but not necessarily corn. Part of this basis decrease is due to the continuing strengthening of the Canadian dollar, as of August 15th at .7547 US. This continues to need to be watched as always, the Canadian dollar has a direct effect on Ontario soybean and wheat prices. Corn basis is a bit of a different animal and will likely be in increased flux as we are moving into September. There will be an early harvest this year in parts of Ontario.
Of course, much of that will depend on where you are in Ontario. Generally speaking, crops are good, but there are always variations on the theme. Dry weather has haunted many farmers in Eastern Ontario at many points in the growing season and that continues. There also has been localized flooding in some locales with parts of Huron and Middlesex county receiving local downpours of 5 inches. As we head into September, it goes without saying farmers need good weather to bring this crop home.
Old crop corn basis levels are $1.65 to $1.70 over the September 2020 corn futures on August 15th across the province. The new crop corn basis varied from $0.95 to $1.45 over the December 2020 corn futures. The old crop basis levels for soybeans range from $2.45 cents to $2.50 over the August 2020 futures. New crop soybeans range from $2.40-$2.51 over the November 2020 futures level. On August 15th the US replacement price for corn was $5.43/bushel. Cash wheat prices are in harvest flux and must be checked daily. You can access all of these Ontario grain on the Daily Commodity Report.
The Bottom Line
The USDA has confirmed some of the biggest crops ever in the United States. However, its still a bit of a journey until harvest. That came into focus even more as Derecho winds swept over big parts of the American corn belt on August 10th. This inland hurricane is not new, but this one was widespread. At the present time it looks like 37 million acres have been affected. Many corn and soybean fields are flat, and yield compromised.
The USDA took their survey on August 1st, so none of the crop damage will be reflected. Earlier estimates of crop damage are said to be in the 300-500-million-bushel corn estimates, which is huge for crop lost in August. As we move forward USDA will have another estimate of yield on September 12th. Price movement into that report will be telling. With December corn at $3.38, can we expect movement back up over $3.60 and $3.70?
Soybeans will likely see some type of a yield estimate decline going forward, but their situation is somewhat different than corn. At the present time, Brazil has run out of soybeans after an exhaustive shipping season to China. China has been buying American soybeans in big chunks and this will likely continue, especially with the Brazilians tapped out. Commercials demand is strong based on an inverted forward curve of futures spreads. In other words, something is going on. One grain analyst from the United States described it as the Great Chinese Soybeans Robbery, as he lamented the sub $9 purchases.
Is that notion, right? Of course, nobody knows, but China has come back into the American soybean market aggressively and this can only be good for price outlook. As is, with the Derecho and increased Chinese buying, that 610 new crop ending stocks number could erode quickly. Looking into next year, it means Brazil better avoid any type of soybean production calamity as it will send market prices higher.
Commodity Specific Comments
Corn prices don’t really excite anybody at these levels, with September currently near $3.24 a bushel. However, a Derecho recount is certainly in the offing and with renewed Chinese corn buying, a move up in futures cannot be negated.
Sure, we have a record yield dialed in but for the rest of August a dry weather forecast might cut that yield. If fact, these might be the highest yields USDA will put in for the year, based on the Derecho winds and the optimistic 181.8-bushel estimate. As we move into September expect good yields from reports as combines roll, but the total crop will likely retreat.
The September 2020 December 2020 corn futures spread is -13.5 cents as of August 15th, which is considered sideways. Seasonally, corn prices tend to bottom into October, but with COVID-19, it’s hard to say. The current spot corn contract is currently priced in the 19th percentile of the past five-year distribution range.
Chinese buying of American soybeans has been frenetic compared to 2019 and the last part of 2018, which has been good for American soybean prices. Brazil has had a good run, but now it’s time for the Chinese to continue buying US soybeans. An argument can be made, the Chinese robbed the Americans by buying too many soybeans sub $9. Prices may have to move up to see where that Chinese demand gets tempered.
The August USDA report was bearish soybeans with record estimates. However, that was pre-Derecho and pre dry weather forecast which has taken over as we go into late August. Soybeans yields are usually set on the rains in August. We are here now, and the next two weeks will help tell whether the USDA hit the high soybean yield mark of 53.3 bpa on August 12th.
The September 2020 November 2020 soybean futures spread as of August 15th is currently -.0175 cents which is considered bullish. Seasonally, soybean prices tend to bottom in October. The current spot contract is in the 26th percentile of the past five-year price distribution range.
Wheat is always chronically over supplied, but there is always a story within that supply story which can make a difference to wheat producers. The story at the moment is the weakness of the American dollar, which is always good for wheat demand. If the American dollar takes another leg lower, wheat prices surely could benefit.
In Ontario, a good wheat harvest has been put to bed and producers will be planning their next wheat acreage move. With good yields and $7 cash prices, some have called “wheat the new corn”. However, maybe we’ll have to wait and see. Needless to say, producers will be poised to plant this fall and standing marketing orders for 2021 need to be part of that process.
The Bottom Line (cont.)
In Ontario the movement in the Canadian dollar has had a huge effect on Ontario cash prices since March and the latest appreciation has been troubling. The Canadian dollar move from 68 cents to 75 cents over the last few months has largely been an inverse reaction to the weakness in the US dollar. There is concern among traders that the US economy will not recover vs the Eurozone. There is also no agreement on further government stimulus between the Democrats and the President. There is also the resurgent Covid numbers and all of this has hurt the value of the American dollar. The Canadian dollar has benefited.
Basis levels for Ontario grains are likely to follow their historical pattern, although much will depend on the crop size in both Ontario and Quebec. As is, the American crop is huge, despite the Derecho, which didn’t reach areas of the US which can export grain into Ontario or Quebec. As it stands now, the Ontario crop is quite good, despite dry areas in Eastern Ontario and a few other places. In fact, harvest will likely start earlier than normal and earlier than in 2019. This will be accentuated if hot weather continues into September. Basis values react with the Canadian dollar and crop conditions. As we move toward fall, daily marketing intelligence on basis values needs to be tracked closely.
US corn exports are not so good compared to past years, down 16% from last year. However, US soybeans are doing much better. On August 14th, 126,000 MT of US soybeans were sold to China for 2020/21, this represented the ninth export announcement in the last ten days, a symbol of the renaissance in Chinese soybean buying. If this continues and US yield is dialed back, soybeans prices could have renewed buoyancy going forward.
The road ahead will surely be lined with many other grain marketing challenges. COVID-19 still stalks our land and our grain markets. At the same time, December 2021 corn as of August 14th closed at $3.72, about 50 cents above where the nearby spot contract found itself on the same day. Simply put, we move ahead, and our marketing window is wide open. Measuring those risks over a timeline and pulling the sales trigger within your own risk management plan continues. Risk management never gets old. In this changing crop space, daily marketing intelligence remains key.