Market Trends Report – April & May 2022
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US and the World
It has been an unusual time in the grain markets over the last several weeks. Usually at this time of the year we are focusing on getting ready for planting with late April and early May a time of great optimism. There is nothing like farmers getting to the field to plant those first seeds of the year. It just so happens in 2022 this has been completely clouded by the geopolitical situation in Ukraine, which has sent grain markets into convulsions based on the effects of a war in one of the world’s largest grain growing regions. During this uncertain time the USDA, as always, continues to publish WASDE reports. Amid the fog of war, the USDA released their report on April the 8th.
With the war in mind the USDA reduced Ukrainian corn exports by 4.5 million metric tonnes to 23 million metric tonnes. At the same time the USDA saw US soybean exports picking up offsetting some of the declines in Brazil, Ukraine and Russia, which will result in a lower US ending stock number. The USDA kept domestic corn ending stocks at 1.44 billion bushels, which was the same as the March estimate. Total corn supply is the same as March still at 16.375 billion bushels. Total corn usage in the United States remains the same at 14.935 billion bushels. US feed and residual use was reduced by 25 million but that was offset by an increase of 25 million bushels for corn to ethanol use.
On the soybean side of the Ledger the USDA reduced old crop ending stocks by 25 million bushels to 260 million bushels. At the global level the USDA pegged ending stocks to be 89.58 million metric tonnes. This was based on global production being less by about 3 million metric tonnes. The Brazil soybean harvest is projected by USDA now to come in at 125 million metric tonnes. In the wheat complex USDA pegged global old crop wheat ending stocks to come in at 278.42 million metric tonnes which is down just a little bit over 3 million metric tonnes from the March estimate. The USDA also lowered the Ukrainian Russian wheat exports, but surely that is difficult to know based on the current hot war going on in the region.
On April 22, corn, soybeans and wheat futures were higher than the last Market Trends report. July 2022 corn futures were at $7.89 a bushel. The December 2022 corn futures was $7.24. The July 2022 soybean futures were at $16.88 a bushel. The November 2022 soybean futures were at $15.05. The July 2022 Chicago wheat futures closed at $10.75 a bushel. The Minneapolis May 2022 wheat futures closed at $11.60 a bushel with the September 2022 contract closing at $11.55 a bushel.
The nearby oil futures as of April 22nd closed at $102.07/barrel up from the nearby futures recorded in the last Market Trends report of $99.27/barrel. The average price for US ethanol on April 22nd in the US was $2.76 a US gallon, up from the $2.45 last month.
The Canadian dollar noon rate on April 22nd was .7873 US, lower than the .7992 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate increased at 1%.
As of April 22nd, there is some corn in the ground in the deep Southwest of Ontario. However, it is likely that corn planting ramps up in the next couple of weeks especially if good weather comes our way. The weekend of the 23rd and 24th was very warm across much of Ontario, but rain showers have limited any planting activity. Weather is always a wild card and there are freezing temperatures forecast for the end of April going into May.
Of course, many of us are wondering what the crop mix will be in Ontario this year. With much higher nitrogen prices, as in 100% higher than last spring you would think that corn might be losing acres to soybeans. However, that does not seem to be the case as antidotal evidence from seed corn dealers suggest corn acres will be strong this year in Ontario. This is certainly a function of high prices, but also the reduction in wheat acres that were planted in Ontario last year.
Basis levels have improved since the last market trends report. This reflects the much higher futures prices that we are experiencing along with a Canadian dollar that has been fluttering between 78 and $0.79 US. We also have somewhat of a strange phenomenon where new crop wheat prices are higher than old crop prices in Ontario as of April 22nd. This is a reflection of the pent-up interest in new crop futures prompted by the war in the Ukraine. As it is, wheat prices are very high for this time of year in Ontario from a historical perspective. For those with wheat growing in the field, it is a very good time.
Old crop corn basis levels are $1.40 to $1.92 over the July 2022 corn futures on April 22nd across the province. The new crop corn basis varied from $1.15 to $1.70 over the December 2022 corn futures. The old crop basis levels for soybeans range from $4.15 cents to $4.56 over the July 2022 futures. New crop soybeans basis levels range from $3.25-$3.63 over the November 2022 futures. Ontario SRW wheat prices are in the $12.47 range with new crop for this year currently fluttering near $12.70 across the province. On April 22nd the US replacement price for corn was $10.23 /bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
To say these are uncertain times is an understatement. Buying and selling futures contracts to hedge your crop in this volatile market environment is incredibly risky in wartime. We have seen futures prices go much higher challenging the 2012 highs, but cash levels in Ontario are much higher based on a lower Canadian dollar. With Vladimir Putin still raising the game stakes, it’s hard to know what is ahead. Be as cautious as you can with your marketing as we move into an even more price volatile environment in the coming months.
That is a big concern for sure and probably the number one with regard to grain market volatility. However, it is also important to keep in mind the basic grain fundamentals. At a certain point we’re likely to get back to normal when grain prices go down to what their cost of production is, but it’s unlikely in 2022. The war in Ukraine on top of lower production in places like Brazil set up a perfect storm. As we move ahead, nothing seems easy.
As farmers, the war along with extremely high fertilizer prices as well as our continual supply constraints are putting up challenges we had never envisioned. This has happened without our proverbial issue which is the weather. The long term forecast for the eastern corn belt is wetter into June and much drier after that. That will present some challenges to get this crop planted. We move ahead hoping for the best
Put together a big crop in North America along with big crops in South America later in the year and one would think our supply issues would be solved. However, much will depend on the weather and if the opposite happens, prices in 2022 might seemed nostalgic. Keep in mind that last year the Brazil soybean crop dropped 10% from the year before and this was only the fourth time since 1985 that has happened. Will it be a wet slog this year like it was in the spring of 2019 or will the “hot and dry” hit earlier than usual? These standard questions still apply at this time of year.
Commodity Specific Comments
There surely is some old crop still around in bins and who knows how much higher it can go. However, for those with new crop there is somewhat of fixation on Mother’s Day. For instance, if the US crop is not 50% planted by Mother’s Day usually it’s considered behind which should be reflected in prices.
We are close to all-time highs for corn futures prices. The question might be how high can corn prices go? Seasonally, we know the corn prices don’t usually top out in April. We also know that if there is any hint of drought in the American Midwest this summer it will keep corn prices on fire.
The May 2022 corn futures contract is currently priced 4 cents above the July contract which indicates bullish demand. Seasonally, corn prices tend to peak in early June and bottom in early October. The nearby July contracted is currently in the 95th percentile of the past five-year price distribution range.
Soybeans have benefited from the worldwide bullish move in vegetable oil markets. We have seen record highs and soybean oil and that has to come from somewhere. We also saw Indonesia ban the export of palm oil overnight and with that soybeans reacted accordingly you also have a limitation of sun oil coming out of Ukraine. This continues to support soybean prices as of late.
Keep in mind that soybeans stocks at 260 million bushels are extremely tight, but at the same time, we’ve got November soybeans at $15.00. Those are great prices with a big crop about to be planted. How much higher can they go? Or is the question, how much lower? There is lots of risk on the table.
The May 2022 soybean contract is currently priced 28 cents above the July, which is an indication of very bullish demand. This contract is also in the 95 percentile of the past five-year price distribution range. Seasonally, soybeans tend to peak in early July and bottom in early October.
Wheat has been the focus of the grain markets since February 24th when Russian troops moved into Ukraine. It continues to be as that conflict seems to be getting worse with Russia looking to control the southern region which borders on the Black Sea. Of course, this has limiting effects on the export of Ukrainian grain, but Russian wheat likely well somehow be exported. There will be countries hungry to buy it.
In Ontario, the 600,000 acres, which might see July couldn’t be more well placed, price wise. With new crop wheat approaching $13 a bushel, wheat producers are well placed. A Canadian dollar floating under 80 cents US will continues to add stimulus at these elevated futures levels for Ontario farmers.
The Bottom Line (cont.)
The Canadian dollar fluttering in the 78 and 79 cent level US continues to be an underlying stimilus to Ontario grain prices. It cannot be emphasized enough this is significant versus the last time futures prices were this high in 2012. At that time, we had a Canadian dollar at par or higher mitigating some of the futures price rise. This time around with the war markets we have very high futures prices but so far, they have not broken all-time records, but Ontario cash grain prices are at record levels. As it is, the Canadian dollar is at these levels even with the Bank of Canada raising interest rates. This is somewhat unusual behavior, but in these wartimes all bets are off.
Part of the explanation for that is found in the value of the US dollar which continues to strengthen. At times of uncertainty The US dollar is still king, and we are there in spades right now. Interest rates are likely to rise in the United States as well, but the geopolitical uncertainty will likely continue to strengthen the US dollar. This usually has a mitigating effect on grain futures prices but has not so far. Much will depend on the geopolitical picture concerning the war in the next few months.
We still have a grain market that wants more of everything. We also have countries circling their wagons in an attempt to protect their own food supply. The Indonesian example of cutting off palm oil exports was just one tactic of countries being concerned about their own food sovereignty. There may be more and the situation in the Black Sea is certainly causing food supply interruptions in places like North Africa, where wheat consumption per capita is off the chart. This is not a scenario where grain market players are singing “kumbaya” around a campfire. It is more of a mad scramble and Ontario cash grain prices of $9.50 for corn and $21.57 for soybeans reflect that.
The challenge for Ontario farmers is to manage this risk as we go forward. Surely, some of us have taken risk off the table with Ontario cash prices continuing to seek new record levels. That only makes sense. Keep in mind as we do that, we are in a totally different grain market pricing environment than we have ever seen before. That is partly because we’re dealing with the unpleasant realities brought to the table by Russian leader Vladimir Putin. We don’t know what is ahead in that regard and we don’t know how that will impact grain prices. However, it’s all part of our risk management, a tall order for 2022. There will be many grain marketing opportunities ahead.