US and the World
As 2019 is coming to an end, many farmers across the North American corn belt, it can’t come soon enough. A brutal spring which turned into summer has now transformed the angst to a tough fall for many farmers. As of December 9th, the USDA reported that 8% of US corn is still out in the field. Much of it, still in the snowy part of the upper Midwest. Case in point was North Dakota, where over half the corn crop was still in the field.
Every year is different and 2019 surely was unique.
On December 10th the USDA released their latest WASDE report. There was little change from November. The USDA is still projecting U.S. corn production to come in at 13.66 billion bushels and soybeans to come in at 3.55 billion bushels.
Average yields were left untouched with corn at 167 bushel per acre and soybeans at 46.9 bushels per acre. Corn harvested acres were left untouched at 81.8 million acres with soybeans the same as November at 75.6 million acres.
With lots of crop left in the field and no big changes from USDA, we should expect a bigger change in the numbers in the January 10th, 2020 USDA report.
US corn ending stocks remained at 1.91 billion bushels, soybean stocks remained at 475 million bushels.
Global ending stocks for corn were raised to 300.56 MMT, based on increases in supply in China, Bolivia and Taiwan. Globally, soybeans stocks also were raised to 96.4 mmt based on increases in Brazil and China.
US wheat ending stocks dropped based on increased exports and lowered imports into the United States. Globally, wheat ending stocks were estimated at a record 289.50 MMT, which was above pre USDA report estimates.
On Dec 14th, corn, and wheat futures were higher than the last Market Trends report. Soybeans futures were lower. March 2020 corn futures were at $3.81 a bushel. The January 2020 soybean futures were at $9.07 a bushel. The March 2020 Chicago wheat futures closed at $5.32 a bushel. The Minneapolis March 2020 wheat futures closed at $5.22 a bushel with the September 2020 contract closing at $5.51 a bushel.
The nearby oil futures as of November 8th closed at $60.07/barrel up from the nearby futures of last month of $57.24/barrel. The average price for US ethanol on November 8th in the US was $1.62 a US gallon lower than the $1.71 recorded in the last Market Trends report.
The Canadian dollar noon rate on December 14th was .7586 US, slightly higher than the .7563 US reported here last month. The Bank of Canada‘s lending rate remained at 1.75%.
It has been a very tough fall for many across Ontario. Snow, rain, freezing temperatures and mud has led to an eventful harvest which continues as of December 14th.
Ontario has a huge east-west expanse of corn harvest as well as geographic and weather diversity. From Windsor to the Quebec border there are a mix of conditions. As you get close to the Quebec border harvest conditions have become even more difficult. However, its widespread across the province. Likely, as of December 14th, 85% of Ontario corn is harvested. Many fields of soybeans remain across the province. Cold weather without snow would be a blessing for harvesting.
Part of the issue this harvest season has been high moisture corn. The difficult spring featured late corn planting into June into much of the province. Corn in the high 20s and mid 30s percent moisture has been the norm in many parts of the province.
As every farmer knows, every point of moisture that needs to be taken out. Test weight is an issue in many area and different grades of corn.
Corn basis levels have hung in there over this harvest season, depending on the area. As you move toward the Quebec border, basis levels increase, which is normal.
However the corn crop in Quebec has been an even greater battle to harvest. Basis levels have been higher than usual and somewhat more frenetic than usual in a corn price landscape which lacks transparency. Ontario prices, especially in Eastern Ontario totally relate to Quebec prices. The Canadian dollar at .7586 continues to add stimulus to Ontario corn, soybean and wheat prices.
Old crop corn basis levels are $1.25 to $1.40 over the March 2020 corn futures on December 14th across the province.
The new crop corn basis varied from $0.90 to $1.00 over the December 2020 corn futures. The old crop basis levels for soybeans range from $2.20 cents to $2.30 over the January 2020 futures.
New crop soybeans range from $2.15-$2.27 over the November 2020 futures level. The GFO cash wheat prices for delivery to a terminal on December 14th were $7.48 for SWW, $7.68 for HRW, $7.35 for SRW and $6.54 for Red Spring Wheat. On December 14th the US replacement price for corn was $6.01/bushel.
You can access all of these Ontario grain in the marketing section on the Daily Commodity Report.
The Bottom Line
There are still a lot of market variables playing out as we turn over a new year and see what the USDA comes up with for final numbers on January 10th.
In fact, you might argue there are more variables than usual based on the fact that the Americans announced a Phase 1 trade deal with the Chinese on December 13th. The long ballyhooed announcement of some type of trade piece had been a long time coming.
However, even though the new Phase 1 deal was announced by the Americans, the Chinese were being much more subdued on the amount of agricultural commodities they would be buying.
Intital reports from the Americans talked about $50 billion worth of US agricultural commodities the Chinese would be buying. That wasn’t the story from the Chinese, as their ministry of Finance announced that due to domestic needs, Chinese companies would be allowed to import certain quantities of goods from the United States though market-based procurement.
Tariffs would be lifted on what ever that amount would be. Needless to say, it was not a ringing endorsement from the Chinese.
Generally speaking, the Chinese historically buy more US soybeans at this time of year and into January before the tariffs were applied 18 months ago.
This would be welcome now and the announcement of a Phase 1 agreement could help this soybean trade. However, much of this new agreement is still not apparent. China is still dealing with ASF and importing lots of pork.
There are still too many trade details of the agreement not apparent to give a true read of what this means.
Are we farther ahead because of a phase 1 US China deal with regard to soybean prices? Clearly, that is true, having slogged through the last 18 months of Chinese tariffs. However, its also important to keep in mind that our Brazilian friends are busily growing a 123 MMT record soybean crop at the present time with a good weather forecast.
This is weighing on the market. Also too, clearly, the Brazilians are reaping the tremendous gift given them over the last 18 months of trade frustration between the US and China.
It’s simply added to the production capacity of this world to produce soybeans with abandon.
Commodity Specific Comments
It’s easy to ignore the corn left in US fields and how that might affect prices as we move forward when March corn futures are $3.81.
As of Dec 14th, there is about 1 billion bushels in the field, which is nothing to sneeze at. However, it seems the market is unconcerned. South American corn remains a big competitor to US corn globally.
This South American corn from Brazil will get planted in January and February. Keep in mind that approximately 70% of the Brazil total corn, comes from this Safrinha winter corn crop.
As soybeans are harvested, the corn planters are running beside the combines. The US has lost business to South America because of big crops and cheaper currency, but recently Mexico has made US purchases of corn. As this South American supply runs out, US corn exports should increase.
The March to May corn futures spread is currently -7 cents, which is considered bullish. The current March corn contract is now in the 49th percentile of the past five year price range, a neutral position.
Seasonally, corn futures tend to trade higher from her into June.
There can be an argument made that soybeans have the most upside vs. corn and wheat simply looking at where we’ve come in one year.
A year ago, the soybean ending stocks figure had ballooned over 1 billion but now has been cut by more than half to 475 million. It all happened because of big crops and China pulling back. However, there are signs of life.
African Swine Fever in China is showing signs of mitigating as the latest numbers show hog numbers bottoming out and even increasing. Of course much of the decrease in ending stocks had to do with less production. Higher prices now will depend largely on the record crop apparently been grown in Brazil.
The January 2020 March 2020 futures spread as of November 14th is -14 cents, which is considered sideways. The current January soybean contract is currently priced in the 28th percentile of the past 5 year price range, so on the cheaper side of the ledger.
Chicago wheat has seen some improvement based on a variety of factors. There has been weather related issues in wheat is far off places like Europe, Australia and Argentina.
US acreage of course is way down historically, as wheat falls out of favour. However, the rest of the world has picked up that slack, moving the production goalposts.
In Ontario, a solid 1 million acres looked to be planted, with contract prices currently near the $6.88 mark for July 2020 SRW harvest.
This is a result of higher Chicago futures but also the effect of a Canadian dollar still hovering near 75 cents US. These are good prices based on our seasonal Ontario wheat price history.
The Bottom Line (cont.)
The corn market has continued to struggle, but their has been telling rays of sunshine recently. There have been recent corn sales to Mexico and others and FOB price is that US golf have recently been cheaper than Brazilian values.
Corn-based values have been strong across much of the United States and this does reflect a situation where the corn production might not be as strong as advertised. There is no guarantee that the USDA will reduce corn production on January 10, but if December is any indication, it might be likely.
Keep in mind as we move ahead we still have one billion bushels of corn in the field as of last Sunday. The nearby futures price is still $3.81 a bushel which is quite low, but range bound over the last several years.
The USDA is expecting about 14 million acres to come back into production next year and this does not bode well for corn features prices. Needless to say, that dwells on the supply side of the equation, which is always telling.
December 2020 corn is currently $3.95 a bushel, which needs to go higher to encourage a lot more corn acres.
In Ontario, a brutal harvest continues as of mid December for many farmers. It is likely that the Ontario corneal will end up in the high 160 range or even over 170 bushel per acre.
This would be difficult to believe for some producers in Central Ontario who experience throughout the summer and have much lower yield. However, corn was quite good in the deep south west of the province with good test weight.
Corn basis levels were sustained and were a redeeming factor across much of Ontario. This was partly nurtured by the slow harvest and the quality issues in parts of Ontario and into Quebec.
The Canadian dollar hovering in the low 75 cents US range continues to help with the soybean and wheat basis levels. An increase in the soybean futures prices and low Canadian dollar has boosted the soybean basis recently.
Stephen Poloz, the Bank of Canada governor has announced recently that he doesn’t expect interest rates to go up any time soon. In fact, in that environment, the Canadian dollar is unlikely to gain and some economists are even saying we’re going lower.
This would be a stimulus to Ontario cash grain prices and also complicate our marketing plans. Balancing Canadian dollar value with futures prices will continue to challenge.
The next 3-4 weeks will surely help redefine our grain price marketing environment.
During this time, there should be much fleshing out of the potential from the new Phase 1 agreement on agricultural commodities between the US and China.
On January 10th the USDA will give us their final production numbers on the crop grown in 2019. Typically, this day can be explosive. Then there are all the other market variables which are day to day.
The challenge for Ontario farmers is to continue to work that marketing plan. Our marketing landscape is ever changing. Daily marketing intelligence will remaining key. There will be many marketing opportunities ahead.
Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.