Market Trends Report – December 2021 & January 2022
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US and the World
2021 is winding down and farmers are reviewing harvest results and recalibrating plans for the next crop year. In the United States corn and soybean harvest is wrapped up. The USDA released their final weekly crop progress report at the end of November and will be reissuing those reports starting on April 4th, 2022. 92% of the winter wheat had been planted as of November 29th and 44% of this cropped look good to excellent. Time comes at you fast. Through the next few weeks farmers will be changing gears and concentrating on a new calendar year. 2022 will surely have its host of challenges.
On December the 9th the USDA released its latest WASDE report. The December report is usually glossed over as it comes the month before the final numbers from USDA in January. This December report was no different as it did not contain any monthly changes for domestic corn or soybean supply or demand in the United States.
This means that the USDA is continuing to look for 177 bushels per acre of corn with total production coming in at 15.062 billion bushels. It also means that the soybean number remains the same at 51.2 bushels per acre for a total crop of 4.425 billion bushels of soybeans. Corn ethanol demand remained at 5.25 billion bushels despite several forecasts among industry sources that predicted stronger demand. USDA left Brazil soybean production at 144 million metric tonnes and Argentina at 49.5 million metric tonnes. The USDA increased US wheat stocks to 598 million bushels which reflected lower US exports.
On December 10th, corn, soybeans futures were higher than the last Market Trends report. Wheat futures were lower. March 2022 corn futures were at $5.90 a bushel. The January 2022 soybean futures were at $12.67 a bushel. The March 2022 Chicago wheat futures closed at $8.17 a bushel. The Minneapolis March 2022 wheat futures closed at $10.21 a bushel with the September 2022 contract closing at $9.19 a bushel.
The nearby oil futures as of December 10th closed at $71.67/barrel down from the nearby futures recorded in the last Market Trends report of $80.79/barrel. The average price for US ethanol on December 10th in the US was $3.03 a US gallon down from the $3.19 recorded in the last Market Trends report.
The Canadian dollar noon rate on December 10th was .7865 US, lower than the .7959 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
In Ontario the wet weather continues to challenge. In fact, you could make an argument that in parts of Ontario especially the deep Southwest it has been wet since June. However, this continued through harvest time right up into December with mild temperatures predicted for the week before Christmas. There are a few fields of soybeans left across the province and some corn still to come off. Colder weather would be welcome to make it easier for heavy harvest equipment to get into the fields.
The story on yield has been a good one for Ontario. Preliminary numbers still not all complete puts Ontario soybean yield at approximately 53 bushels per acre and corn yield above 200 bushels per acre. That is a solid year no matter what argument can be made. The wet weather during harvest obviously caused lots of challenges for wheat planting. However, how much of that will be viable in the spring will be telling.
Basis levels have increased for corn and soybeans and wheat as the Canadian dollar has dropped to some extent along with strong demand. Futures levels have also gone up since the gutslot of harvest, which also helped basis. With such a big crop in the bin in Ontario it will be important to have good exports into Europe this year. As it is, Ontario should be set for corn supply into the new crop year. With $7 plus corn off the combine, nobody knows for sure the risk ahead and how much Ontario corn may be moved out by then.
Old crop corn basis levels are $1.20 to $1.50 over the March 2022 corn futures on December 10th across the province. The new crop corn basis varied from $.90 to $1.25 over the December 2022 corn futures. The old crop basis levels for soybeans range from $2.95 cents to $3.22 over the January 2022 futures. New crop soybeans basis levels range from $2.60-$2.90. Ontario SRW wheat prices are in the $8.90 range with new crop for next year currently fluttering near $9.30 across the province. On December 10th the US replacement price for corn was $7.82 /bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
As we head into 2022, we find ourselves with some very healthy prices for agricultural commodities. Of course, it is all relative to where we have been as prices were higher last June. However, if you look back a year ago January soybean futures prices were $11.60 and March corn was $4.23 a bushel. At that time, it represented quite an increase from the six months before that. It just goes to show that agricultural pricing is fluid at the best of times. Do you want high prices? Sometimes, like December of 2021 we need to take yes for an answer.
Of course, if you’re asking whether $5 corn is the new $3.50, that is another question. Inflation is very real as we head into 2022 and we all know that the farm input price scenario has changed greatly. Some of our fertilizer prices are at record highs and even though we don’t know if that will continue, it is likely that we will be paying higher prices next year than we did this year. If you do the math, the higher commodity prices that we are receiving now helps to normalize the equation going forward. It’s all about risk and reward, per usual. Fertilizer prices are likely to remain high, but we do not know where agricultural commodity prices will settle out.
China continues to be the elephant in the room regarding agricultural demand. We all know the history of China buying soybeans but increasingly they are coming into the market for corn and wheat as well. For instance, Ukraine had a record corn crop this past year of 1.57 billion bushels and China has been a buyer of Ukrainian corn. At the same time, January corn on China’s Dalian exchange was approximately $10.55 on December 10th. That fact alone, should mean China should be in the market in the next few weeks and months for American corn. Ditto for American soybeans even though that window is fast closing with a potentially huge South American soybean crop in the offing.
Having said that, we still have all the geopolitical concerns we always have had. The United States, Canada and countries in Western Europe have put on a diplomatic boycott of the 2022 Olympic Games in China. At the same time there are rumblings of import tariffs on Chinese goods into the United States. You can see the problems that may arise. Also too, Russia and Ukraine are building up troops on their northeastern border. All these issues have the potential to disrupt agricultural trade flows. Prices will react accordingly.
Commodity Specific Comments
Mexico has been a big purchaser of US corn and hopefully this continues. The US is always the major supplier for the world of corn even though Brazil is increasing its production. At the present time the first Brazil crop is doing well with a little bit of dryness in the South. However, most of the Brazilian corn production comes from the second crop which is planted in February or March.
Ethanol production in the United States has been robust as margins to crush corn into ethanol have been quite high. This is driving the local corn price in many parts of the United States where there is an ethanol presence. It’s also welcome especially since the American government has been fickle regarding the renewable fuel standard. As it is, ethanol plants are at full capacity.
The March 2022 corn futures contract is currently priced 2 cents below the May 2022 contract which is a neutral position for corn demand. Seasonally, corn futures prices tend to peak in early June and bottom in early October, but it’s important to keep in mind the other production season going on in Brazil. This can always skew that seasonality. The nearby March 2022 corn futures contract is currently in the 66th percentile of the past five-year price distribution range.
The next 30 to 60 days represent a captive market, where American soybeans are the only supply left on and the planet for willing buyers like China. After this, Brazil soybeans should be coming onstream even though the first beans down there will be used for their domestic demand.
As of mid-December, the weather for the soybean crop in Brazil has been benign meaning that we’re looking at one of the biggest crops ever coming out of the southern hemisphere. It’s not like this is a surprise, as the USDA has been predicting 144 million metric tons coming from Brazil this year. As farmers, we need to recognize that, both positive and negative. That big crop might negatively impact soybean prices, but then again, it’s not there yet. Brazil weather will have to continue to be kind to count all those soybeans.
The nearby January soybean contract is currently price 6.5 cents below the March which is a bearish indication of demand for soybeans. Seasonally, soybean prices tend to peak in early July and bottom in early October but as always, we need to watch that South American crop. The nearby January futures contract is currently in the 54th percentile of the past five-year price distribution range.
Wheat futures have declined over the last few weeks but are still at elevated levels and demand is very strong. There is also dryness across much of the American wheat growing belt, which might impact supply. Further to that, much of the eastern corn belt experienced monsoon like weather in October which impacted SRW wheat planting and crop conditions. As each wheat class has its own supply and demand table, it will be important to dial down into those scenarios to further determine the price of each wheat class. The geopolitical concerns with Ukraine and Russia have the potential to disrupt this market.
In Ontario we have about 750,000 acres of wheat planted, but of course how much of that gets to the finish line next July and August is another question. Simply put, we had a difficult fall in Ontario and even frost seeding has been limited as temperatures have not been favorable in December. With cash prices in the $9 and $10 level previously for Ontario wheat, that’s all good. We will see where we are come spring.
The Bottom Line (cont.)
The Canadian dollar has shown some weakness over the last month helping to sustain values of Ontario and Quebec grain. In fact, basis values have been sustained or even improved over this time, partly because of the lower Canadian dollar. The Bank of Canada has maintained its overnight lending rate at 0.25%, but it seems the days of this are coming to an end. This may mean in the future higher interest rates which will be bullish for the Canadian dollar. In 2022, this will need to be watched closely. In other words, Ontario farmers will have to continually balance the challenge between foreign exchange value and the value of nearby grain futures contracts.
With grain prices at elevated levels, balancing our requirements in Ontario will be challenging. Keep in mind the world has great potential to produce grain and we find ourselves now in a place where our agricultural demand seems to be devouring it all. There are issues in wheat country around the world and at the same time nearby corn futures near $6 is another indication a big demand. As we end 2021, from a price perspective this is a much healthier position to be in than we have seen in past years. Of course, the only thing that we could be sure of is that we can’t be sure of anything at all. The weather still matters, and this agricultural world will still be one of managing risk. Go ahead cautiously but also go ahead to capture good opportunities.
Our old nemesis Covid is still here, and it is manifesting itself at the end of 2021 with more infections, more deaths and more problems. We are now faced with not only the Delta variant but the Omicron variant, which at this early stage seems far more transmissible than those that came before it. This will continue to impact our agricultural and food economy. In fact, at this stage of the game the potential negative impact from Omicron is still being measured and calibrated. As it is, it can’t be good for the supply disruptions within our greater global economy. As farmers, we keep working and trusting in the science.
The challenge for Ontario grain farmers is to continue to measure all these risks as we make production plans for 2022. As of mid-December 2021, new crop soybeans for next year are valued at $15 plus a bushel off the combine and new crop corn is $6.50 a bushel. Historically speaking, those are great starting points. As we move into 2022, surely, we can use those prices as benchmarks for the upcoming year. Standing market orders will continue to be a great tool to capture some of these pricing opportunities. There will be many marketing opportunities ahead. Daily market intelligence will remain key.