Market Trends Report for June & July, 2020
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US and the World
It’s been a good start for US crops as we head into the end of June and the first part of July. As of June 7th, 75% of American corn was rated good to excellent, much higher than the difficult year of 2019. 93% of American corn had been planted. 86% of American soybeans had been planted by June 7th, with 72% of the crop rated as good to excellent. Tropical storm Cristobal somewhat unexpectedly also brought rains to the Midwest in early June. The planting problems from 2019 are a distant memory as the American Midwest is in far better shape this year versus last year with far more acres planted. As we careen toward the end of June, USDA will be releasing those new planting numbers June 30th, which always serves as a benchmark for grain markets.
On June 11th, USDA released their latest WASDE (World Agricultural Supply and Demand) report. In corn, USDA raised old crop ending stocks by 5 million bushels, pushing this stocks number to 2.103 billion bushels. This had the effect of increasing the new crop corn ending stocks by the same to a whopping 3.323 billion bushels. The USDA maintained all the same demand numbers from the May report, including the 97 million acres of corn acres planted, 178.5 bushels per acre and production pegged at 15.995 billion bushels.
The big news from the June 11th USDA report in soybeans was a reduction in new crop ending stocks, being pushed down to 395 million bushels on the lower end of pre report estimates. Soybean crush numbers were increased by 15 million bushels. However, the old crop soybean ending stocks were increased to 585 million bushels, which was within pre report trade estimates. As expected, US national soybean production was left unchanged from last month’s report at 4.125 billion bushels with a national average yield of 49.8 bushels per acre on 83.5 million acres. The USDA raised wheat carryover by 5 million bushels and raised US production for the 2020/21 crop year to 1.877 billion bushels.
On June 12th, corn, soybean and wheat futures were higher than the last Market Trends report. July 2020 corn futures were at $3.30 a bushel. The July 2020 soybean futures were at $8.71 a bushel. The July 2020 Chicago wheat futures closed at $5.02 a bushel. The Minneapolis July 2020 wheat futures closed at $5.13 a bushel with the September 2020 contract closing at $5.25 a bushel.
The nearby oil futures as of June 12th closed at $36.26/barrel up from the nearby futures of recorded in the last Market Trends report of $29.43/barrel. The average price for US ethanol on June 12th in the US was $1.47 a US gallon up from the $1.34 recorded in the last Market Trends report.
The Canadian dollar noon rate on June 12th was .7355 US, higher than the .7095 US reported here om the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
As of June 12th, Ontario planting is nearing completion. It has been staggered across the province with some areas like the southwest receiving various rain events holding up planting. However, the planting season was somewhat uneventful from a planting progress perspective except for the cold May, which saw frost and snow in many locations. Some areas were getting dry, the remnants of Hurricane Cristobal came through on June 10th helping some crops. Despite that, there were replants of both corn and soybeans in select areas around the province. However, this is not 2019. The 2020 Ontario planting season was much more forgiving than last year.
Covid19 has made its mark in Ontario grain pricing. Cancellation or delays of various grain contracts were apparent last month. This continues to some extent, but export demand into the UK with our preferential trade treatment has helped to some extent. Basis levels for corn have increased slightly from last month. However, in an environment with cancellations and delays, that is a bit of an outlier. The increased value of the Canadian dollar in the last month has also put pressure on Ontario basis levels.
The Ontario wheat harvest is less than a month away in the deep southwest of Ontario. The crop looks good having survived so much cold weather and is a welcome crop rotation after so many wheat acres were abandoned last year. Wheat prices above $6 with previous contracts over $7 will help. Standing pricing orders for wheat have been invaluable at pinpointing attractive flat prices.
Old crop corn basis levels are $1.30 to $1.45 over the July 2020 corn futures on June 12th across the province. The new crop corn basis varied from $0.90 to $1.45 over the December 2020 corn futures. The old crop basis levels for soybeans range from $2.65 cents to $2.78 over the July 2020 futures. New crop soybeans range from $2.45-$2.58 over the November 2020 futures level. The GFO cash wheat prices for delivery to a terminal on June 12th were $6.98 for SWW, $7.18 for HRW, $6.98 for SRW and $6.31 for Red Spring Wheat. On June 12th the US replacement price for corn was $5.18/bushel. You can access all of these Ontario grain in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
It is a critical time of year for pricing grain. However, the script is not quite working out versus normal times, as Covid19 continues to partly define our grain marketplace. Of course, there are other factors as well, one being the vestiges of the China US trade war. However, big supplies of grain and good crops over the last few years have really added up. That is set to continue. We’ll see if mother nature will continue to play nice.
That cannot be discounted. As farmers, we know that drill. Good benign weather will bring yet another good crop to the United States. Of course, in 2020 this is augmented by ever better genetics which seem to add a certain “bullet proofing” to crop yields on an annual basis. We talk about weather effects all the time, but the next 6 weeks are critical. Daily market and weather intelligence on US crop growing areas will need to be watched closely.
US soybeans looking forward into August are at a distinct price advantage over Brazilian soybeans. You would think it would be a Bonanza for Chinese soybeans buyers. This maybe the case, as it is setting up really well, but geopolitical machinations might continue to get in the way. Soybeans really don’t have the bearish market factors that corn has, but constant guessing on the China US trade relations isn’t helping. As we move ahead, this should be more defined as we hit mid-summer weather.
A defining USDA report is always the June 30th report which could loom as a major market mover. On June 30th we’ll get actual planted acres from USDA vs the projections we’ve been working on since March 31st. There will also be grain stocks released which should also give us a picture of how bad demand destruction has been in corn. It might be the opposite in soybeans. Clearly, from a farmer perspective the June 30th report is a benchmark to price grain.
Commodity Specific Comments
What are we going to do now about the corn price? With funds short in the corn market, often, when these shorts are replaced, the market sees a rally. Nobody knows, as seasonally this is the time to price corn, but we’re easily 60-65 cents below where we usually are at this time of year. Would $3.60 December futures be a selling price vs $3.43, where we are June 12th? It’s hard to say, but the next 3 weeks will help define where corn is. Adjusting our expectations on price is difficult, but 2020 might be the year to do it.
Ethanol demand is slowly coming back, but of course it is never fast enough for farmers, especially when it has contributed to that 3.3-billion-bushel new crop carryout. However, across the United States, despite Covid19 numbers rising significantly, many states are opening up and driving is on the increase. Ethanol usage will increase, and this should show up in future demand numbers despite USDA reducing ethanol corn usage down below 5 billion for the first time in many years in their June 11th report.
The July 2020 September 2020 corn futures spread as of June 12th is -0.045 cents which is considered sideways. Seasonally, corn tends to top out at this time of year, but it looks like this year, it’s in the rear-view mirror thanks to Covid19. The nearby spot corn contract is currently in the 13th percentile of the past five-year price distribution range.
Some of the biggest news from the June 11th USDA report was the lower than expected soybean ending stocks of 395 million bushels. It’s been a long time coming down from the 1 billion bushel ending stocks from a couple of years ago. Take 2 or 3 bushels per acre off this year’s projected yield and that could easily go to 200 million bushels. North Dakota is the US sixth largest soybean producer and this year; soybean planting progress is lagging. It may have a significant effect on the soybean supply and demand balance sheet going forward.
Soybean prices are very close to the 100-day moving average which serves as pretty heavy resistance. This may present an opportunity for pricing in the next few weeks during any summer rally. Nobody can predict the weather, but despite the price problems we have, in soybeans, fundamentally, we’re better off from where we’ve been. The weather will surely write the rest of the story in 2020.
Wheat always has a story to tell, but always has a lot of story tellers around the world. Wheat futures prices have retreated lately partly due to US harvest pressure. The USDA report further documented the onerous world stocks of wheat that continue to grow. In the US, a weaker dollar is helpful to wheat, and the opposite not so much. Needless to say, USDA projected a new crop wheat number at 925 million bushels which is on the low side of historical estimate.
In Ontario, the wheat crop continues to move toward harvest, having come out the other side of a very cold May. Fungicide treatments are being applied as of June 12th staggered across the province, as we head toward the finish line. A surging Canadian dollar at .7355 has taken some of the effervescence out of Canadian basis values. This will need to be watched closely over the next four weeks as harvest prices are further defined.
The Bottom Line (cont.)
The Canadian dollar has risen significantly from its low on March 19th when it dived to 68.2 cents US. Standing presently at .7355, this has eroded some of the basis gains we saw momentarily at that time. For instance, basis levels at a 68-cent dollar were solidly over $3 for soybeans. It is just another example how the Canadian dollar affects the soybean and wheat basis and must be watched to capture flat pricing opportunities. The Canadian dollar has gained against a US dollar which has lost a little steam lately. As we move ahead, the inverse dance between the US and Canadian dollar will need to be watched closely. The perfect storm in the next few weeks would be to get a grain futures rally combined with some Canadian dollar weakness. However, in lieu of that flat pricing opportunities shouldn’t be ignored.
Keep in mind, the bearishness in this grain complex has been unforgiving and at times, you start to believe it will never change. However, keep in mind it will. The USDA gave us clues that soybeans might provide a way out with their lower 395 MMT new crop grain stocks estimate. On a global level, soybean demand is set to increase. In fact, a recent study issued by the United Nations Conference on Trade and Development said although global agricultural commodity demand is down, China is set to increase soybean imports in 2020 by 34%. As it is, an ending stocks figure of 395 MMT should set the stage for $10 cash soybeans in the US. However, COVID19 and the jitters over US China trade have stopped that. Needless to say, the pent-up demand is there, and as economic recovery eventually comes, the pawns are in a row to see soybean prices move higher.
Turning the corner into a more bullish grain environment will surely be a challenge after everything we’ve been through this year. Crop weather in the next few weeks will be key to our price reality. It always is. If it stays dry and temperatures ramp up, crop stress might define the marketplace. Needless to say, every scenario is in play, but in reality, the time is now for weather to exact its price. That combined with the upcoming USDA actual planting numbers on June 30th will further define crop prices as the Covid19 pandemic continues.
As we move forward, key will be to define where you are with regard to standing pricing orders. Has this Covid19 affected grain market redefined your marketing goals? Are you willing to adjust your expectations especially in a corn market, which is overly bearish especially for this time of year? Will the Canadian Loonie return to 68 cents US in the near future? There are a myriad of market factors we need to consider on the road to harvest. With wheat harvest coming into view, we need to double down on that. The road ahead will surely have many marketing opportunities. Although, nobody knows what will happen, risk management never gets old.