Market Trends Report – April & May 2024
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US and the World
It is that time of year. Across the Great North American corn belt farmers are in the fields or at least getting ready to plant their crops when the weather cooperates. What was a very mild winter has turned into a wetter colder start for getting on the land in the last few weeks. However, as always this will change, and farmers everywhere will be hitting the autosteer button on the long road to pay day very soon. Weather will always be our litmus test. Markets continue to boil amid all this activity. The USDA checked in with their latest WASDE report April 11th.
On April 11th the USDA dropped corn ending stocks slightly by 50 million bushels to 2.122 billion bushels. This was slightly higher than the traded estimated earlier. In fact, it is the highest in the last five years. There had been some expectation that the Brazilian corn crop estimate would be dropped, but this did not happen with the USDA estimating 124 MMT or 4.88 billion bushels. Argentinian corn production was dropped slightly by 1 MMT to 55 MMTs or 2.16 billion bushels. Corn futures lost ground on the day.
On the soybean side of the ledger USDA actually increased soybean ending stocks to 340 million bushels, which was above the trade expectation. There has been a season long expectation that the Brazilian soybean estimate would be lower, but once again this did not happen. The USDA came in with a robust 155 MMTs or 5.69 billion bushels. This is in contrast to the Brazilian crop rating agency, CONAB which is estimating 146.5 MMTs. It’s consternating the difference as it represents 312 million bushels, which is almost as high as the US ending stocks number. Soybean futures too retreated on the day with all this big supply so apparent. Changes in the wheat market were negligible with world ending stocks changing slightly up at 258.6 MMTs.
On April 20th, corn, soybeans and wheat futures were lower than the last Market Trends report. May 2024 corn futures were at $4.33 a bushel. The May 2024 soybean futures stood at $11.50. The May 2024 Chicago wheat futures closed at $5.50 a bushel. The Minneapolis May 2024 wheat futures closed at $6.47 a bushel with the Sept 2024 contract closing at $6.62 a bushel.
The nearby oil futures as of April 19th closed at $83.14/barrel about the same as the nearby futures recorded in the last Market Trends report of $83.17/barrel. The average price for US ethanol in the US was $2.07, slightly above the $2.05 a US gallon recorded in the last Market Trends Report.
The Canadian dollar noon rate on April 19th, 2024, was .7274 US, down vs the .7387 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
In Ontario we are ready to go as of April the 20th across the province. However, constant rain and wet weather has hammered any early birds from getting out and planting corn. Needless to say, as we head into the end of April corn planting always ramps up across Ontario. Producers will be looking for an extended period of dry weather headed into May to get things in the ground. This wet weather has hindered to some extent the application of nitrogen on our winter wheat acres. As usual, it will get done. The crop is looking good.
Basis levels tell a story for Ontario grains. The old crop corn basis has not changed hardly at all from our last Market Trends report. However, new crop values have increase slightly reflecting this continuing trend where new crop is leading the way over old crop basis values. There is simply a lot of corn in Ontario, but it is competitive going into northern Europe versus French and American corn. Even though there is a big supply of Ontario corn, fairly robust demand will mean we don’t need any corn crop problems this summer. These markets are hard fought to get, and we need to maintain them.
The soybean basis has increased since the last market trends report and reflects the drop in the Canadian dollar into the 72 cent US level. Like corn, the new crop basis has held up well against the old crop basis. Producers will have to be increasingly cognizant of this as we move forward in both soybeans and wheat as foreign exchange impacts our cash prices much more so than Ontario corn prices. Of course, as move into late spring our basis values will be affected by the number of acres planted this spring in Ontario.
Old crop corn basis levels are $0.35 to $0.72 over the May 2024 corn futures on April 19th across the province. The new crop corn basis varied from $.80 to $1.17 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.75 cents to $3.55 over the May 2024 futures. New crop soybeans basis levels range from $2.80-$3.40 over the November 2024 futures. Ontario SRW wheat prices are in the $6.85 range. On April 20th the US replacement price for corn was $5.96/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
It’s all getting to be a bit of a long story. Listening to any grain narrative in the greater agricultural hinterland and you will hear the story of low prices and burdensome grain stocks. There is also lots of competition from many other places. However, keep in mind in this agricultural grain price world it is always fluid. The conditions that set grain prices are constantly moving. Yes, sometimes grain prices take the escalator up and the elevator down. Needless to say, hopefully it’ll be a steeper escalator. There will be grain marketing opportunities in 2024. The key will be to capture those opportunities.
Some of that opportunity may come in the month of May. It is true that we’ve been in a sharply sideways” to lower trajectory on grain prices for quite some time now. However, May represents a time when planters are in the field and things can go wrong. It is also a time when the trading algorithms are trained to hone in on any weather anomalies in the greater American corn belt. It could easily lead to some big price volatility in the month of May. Of course, we know that June and July often give seasonal highs in corn and soybean prices. Have those standing resting orders for grain ready.
In these pages over the years there has always been geopolitical risk on the table with regard to grain prices moving forward. Russia and Ukraine provided quintessential examples of that a couple years ago when the war started. Grain prices exploded. This white-hot war continues but of course there is also the war going on in the Middle East as well as live fire between Israel and Iran. This “geopolitical noise” will continue to be the wild card in grain prices moving forward. It is become so dialed in, it’s easy to often forget that.
Beside geopolitics, weather will continue to be the proverbial wild card that affects our prices. At the present time in Brazil about 90% of the soybean crop has been harvested with the remaining 10% being challenged by too much moisture in southern Brazil. It’s a double-edged sword because the moisture has benefited the Safrinha corn crop, even though dry weather is predicted to impact it negatively in the next two weeks. On top of this in Argentina 77% of their soybeans are rated fair to excellent but as of April 19th only 14% of the crop has been harvested. There is still some South American production risk ahead.
Commodity Specific Comments
Corn
Corn prices are at a 31-month low which isn’t good for any farmer psyche. There are differences between old crop and new crop but still we are where we are. Some might develop a strategy to sell on strength in the market that might come in momentarily but that has been far and in between.
How will strengthening in the market happen at this point? Some might point to problems with weather and getting the crop planted. However, keep in mind that in the past we have seen how fast a crop can go in especially with all the new technology available on the market today. As of now, it looks like there are no problems ahead and this crop is going to get planted in short order.
The December 2024 corn contract is currently priced at 12.75 cents below the March 2025 contract which is a bearish indication of new crop corn demand. Seasonally, we know that corn prices tend to peak in early June and bottom out in early October. The December 2024 futures contract is at the 33rd percentile of the past five-year price distribution range.
Soybeans
The nearby soybean contract has had a very hard time getting above the 50-day moving average which serves as a benchmark for the funds continuing their short position. Sure, there are other reasons but if the nearby could get above the 50-day average and show signs of improving you would give the non-commercial demand players reason to cover their shorts and send this market higher.
As it is, that’s a slow boat to row. It is no secret that soybean prices have declined with the May contract closing down just under $0.30 lower from Tuesday to Tuesday in the week ending April 20th. The July contract was down 27 3/4 cents in the same time frame. This is happening in a fundamental environment where American soybean shipments are 95 million bushels short of the pace projected for total shipments in this marketing year.
The November 2024 soybean contract is currently priced 11.5 cents below the March 2025 contract which is considered neutral to bearish for new crop beans. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The November 2024 soybean contract is currently at the 45th percentile of the past five-year price distribution range.
Wheat
We continue in the classic mode there’s too much wheat everywhere, even though ending stocks are lower in many countries. In fact, hopefully we’re at the end of a two-year trend in wheat prices. There’s got to be some sunshine somewhere. However, wheat continues to come out of the Black Sea amid all the war tension and this tends to continue to put a cap on rallies in the wheat market. Western European farmers are also not happy about the amount of wheat and other grains that are being transported into their areas. This wheat market needs some very fresh news.
There will be less wheat in Ontario this year mainly because there are less acres than the year before. Of course, we also do not know how the crop is going to fare with spring and summer weather ahead of us. As it is now, the good thing is the crop does look good and there probably will not be much abandonment from over winter and early spring.
The Bottom Line (cont.)
Amid all of the gloom in grain futures prices the Canadian dollar continues to provide stimulus to Ontario and Quebec cash grain prices fluttering in the .7274 cent level US. There are some analysts who are quite bearish the Canadian dollar even talking about it going down in the 60-cent level. There are always people that say worse. However, it is fiction to delve in that debate as the Canadian dollar is a thinly traded currency on world currency markets. The bottom line for Ontario farmers to realize is its value is critical to our cash grain marketing. The optics of a lower dollar means higher cash grain prices and the optics of a much higher dollar would likely mean lower cash grain prices. This remains a default and as we go through the rest of the year, marketing decisions must he focused on both the Canadian dollar and grain futures values.
In the United States, the Environmental Protection Agency has approved summer sales of E15 fuel in 2024. This announcement came after an earlier February announcement where summer E15 sales will also be permitted in 2025. The bottom line from an American farmer perspective is it helps maintain ethanol demand for corn. At the same time the new Canadian federal budget did earmark funds to enhance Canadian biofuel production. In the current grain price environment, it’s all good to see these initiatives, which may enhance grain demand.
As we move ahead price volatility will surely become more of a thing as the weather warms up across the Great North American farm belt. It is no secret that non-commercial demand for grain has been adding to short positions in all three grains after recounting several times over the last few weeks. In other words, even the algorithms are a little bit nervous about this position. Needless to say, they will have specific benchmarks dialed into them as we go into the planting season. Expect big volatility in the next several weeks.
A good way to counter this price volatility will be to have standing resting marketing orders set at your local elevator or regional end user. These need to be measured and re calibrated every so often and documented thoroughly. However, it does represent the opportunity to capture marketing opportunities in the heat of battle during planting season. Markets never get tired; they are consistently fluid and show no mercy.
The challenge for Ontario farmers is to continue to measure all of these marketing factors as they get set to push the autosteer button. There surely will be many challenges to getting the 2.1 million acres of corn and 3 million acres of soybeans in the ground this spring in Ontario. Along the way we will certainly see gyrations in grain futures prices and the Canadian dollar. Of course, who knows what weather anomalies will strike at the same time. Key is daily market intelligence. There will be many marketing opportunities ahead.
