Market Trends Report – February & March 2021
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US and the World
The grain world continues to simmer in the background as winter bares down on the great North American corn belt. Cold weather continues to impact after a relatively benign January. It has been an interesting journey for grain prices since fall as prices have increased significantly in a consistent way since combines rolled last fall. In many ways, getting here was unforeseen. Prices have moved beyond their traditional ranges. At the same time crops are advancing into harvest in the southern Hemisphere. As we get into March, there will surely be hints of spring on the horizon. Grain fundamentals will surely flex further. Grain farmers will continue to re-calibrate their marketing plans.
On February 9th the USDA released their latest WASDE report. The February report is usually less significant to market prices as its sandwiched between the bigger reports in January and March. With much higher grain prices this winter there was some anticipation USDA might adjust grain stocks more aggressively. This did not happen. In fact, USDA reduced corn 2020/2021 ending stocks to 1.502 billion bushels down 50 million bushels from their January report. This was much higher than trade expectations. 2021 corn yield (172 bpa) and production (14.182 bbu) were maintained. Total corn usage was increased by 50 million bushels to 14.625 reducing the stocks to use ratio down to 10.2%.
USDA lowered old crop soybean ending stocks by 20 million bushels down to 120 million bushels. USDA left the supply side of the ledger the same from the January report, but increased exports by 20 million bushels to 2.250 bbu. The USDA maintained Brazilian soybean production at 133 MMT and Argentina at 48 MMT. There were no changes in the US wheat balance sheet from the January report. However, the USDA did drop global wheat ending stocks below the pre report estimates.
On February 12th, corn futures were higher than the last Market Trends report. Wheat and soybean futures were lower. March 2021 corn futures were at $5.38 a bushel. The March 2021 soybean futures were at $13.72 a bushel. The March 2021 Chicago wheat futures closed at $6.36 a bushel. The Minneapolis March 2021 wheat futures closed at $6.16 a bushel with the September 2021 contract closing at $6.41 a bushel.
The nearby oil futures as of February 12th closed at $59.47/barrel up from the nearby futures of recorded in the last Market Trends report of $52.46/barrel. The average price for US ethanol on February 12th in the US was $1.78 a US gallon up from the $1.71 recorded in the last Market Trends report.
The Canadian dollar noon rate on February 12th was .7867 US, higher than the .7857 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
Ontario
In Ontario, good snow cover is helping the 1.1 million acres of wheat, safely ensconced under the snow. That is not always the case in the deep SW of Ontario. Grain continues to move, much of it in commercial hands, as farmer selling was heavy into the price rally last fall and early winter. There is no hint of spring yet, but typically after we get past Feb 15th, we typically have more good winter days than bad. March surely will bring that to fruition. Farmers will need to continue to hone those marketing plans into March.
The question is are these prices good enough for Ontario farmers in 2021? As of February 12th, old crop corn is $7 plus per bushel and old crop soybeans are $17 plus. New crop prices are heavily discounted from old crop values reflecting the production season before us. New crop corn prices are $5.40 plus per bushel and new crop soybeans are $14.40 plus, which are much higher than springs past. However, as per usual, immersing ourselves in market factors are key. Profitable pricing is always a good thing.
The Ontario grain marketplace continues to evolve. Our favoured status (non tariffed) access to the UK and the EU for Ontario corn really helps move corn out of the province. At one time, “export corn” in Ontario meant shipping corn into the US at fire sale prices. Over the last few years since the signing of CETA, exporting to Europe has meant the antithesis of that, supporting basis in Ontario. It’s meant US corn has been replacing at times corn which has been exported to Europe. The same could be said for Quebec, which affects corn movement in Eastern Ontario. This will continue into spring and summer, especially when our American competitors do not have the same trade favoured access.
Old crop corn basis levels are $1.45 to $1.64 over the March 2021 corn futures on February 12th across the province. The new crop corn basis varied from $0.95 to $1.33 over the December 2021 corn futures. The old crop basis levels for soybeans range from $3.30 cents to $3.40 over the March 2021 futures. New crop soybeans basis levels range from $2.75-$2.91. Ontario SRW wheat prices are in the $7.70 range on February 12, with new crop values in the $7.10 range. On January 15th the US replacement price for corn was $7.48/bushel. You can access all of these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
As we head into March, farmers are enjoying some very good prices, which a year ago, could hardly be imagined. Covid19 still stalks our land, but profitable prices add some effervescence to the agricultural economy that cannot be denied. How did we get here? In retrospect, it had much to do with pent up Chinese demand for agricultural commodities and a less than stellar American crop finishing up in 2020.
Heading into spring, it’s more of the same with regard to old crop. Of course, we are looking to China again to make good on their commitments to buy new crop soybeans and corn. Will China tap out Brazilian soybean supply again like they did in 2020? Will the Brazilian crop be as good as advertised. Will Brazilian soybeans reach American shores as American soybeans reached into Brazil? These are just some of the questions we need to ask ourselves as the temperatures warm up into March.
Where do prices go in the immediate future? Well, grain futures prices don’t lie and both corn and soybeans futures contracts have been solidly in the inverse for several weeks if not months. That means that both the non-commercial and commercial end users are willing to pay a premium now vs outward months, a sign of strong demand. The May July corn futures spread has weakened lately, an indication of better conditions in South America and the possibilities of a good Brazil Safrinha (second) crop. Needless to say, these futures spreads need to be watched closely, at these high price levels, because low prices nurture demand. Higher prices tend to do the opposite and that’s where we are now.
It’s too early in many ways to talk weather, but then again, it’s always top of mind. In the US western corn belt drought conditions are a concern going into spring. There is also the arctic blast currently impacting wheat areas in the United States. Brazil is harvesting soybeans in some areas, not in others. Needless to say, weather will impact their too. Despite our snow and cold in Ontario, weather markets happen almost all the time. It’s key to keep abreast of how this impacts futures prices.
Commodity Specific Comments
Corn
Corn has really benefited by the renewed Chinese demand. As per usual, what is really happening there? The Chinese hog herd might be in the rebuilding stage and that takes more corn and soybeans. However, will it continue especially at elevated corn prices levels? There are a myriad of questions here, where the data is blurry.
Needless to say, the USDA increased corn imports into China to 24.5 MMT, up from 17.5 MMT last month. It is what it is, but the US won’t have a monopoly on that business especially as we move forward. However, Chinese demand will remain a bit of black box. If we are here a year from now with the same demand and shipments, we’ll know it’s real and not a momentary flash in the pan.
The March 2021 corn futures contract is currently priced 13.75 cents above the July contract which is considered bullish. Seasonally, corn prices tend to peak in June, but this year it’s been so different. The March contract is currently priced in the 87th percentile of the past five-year price distribution range.
Soybeans
The USDA reduced the old crop soybean carryout down to 120 million bushels in the February WASDE report. Clearly, the United States soybean supply is running on fumes and its likely, that this number drops in the months to come depending on when new crop supplies come along. However, that’s still a growing season away and there is so much production risk ahead.
It is likely that Brazilian soybean get imported into the United States, just like US beans were imported into Brazil. The high demand environment fostered by Chinese demand led to this situation. Going forward, soybean prices will determine whether Brazilian beans land in the US and in what quantities. The Brazilian import replacement price for American soybeans will keep a limit on old crop values. However, large quantity imports will prove difficult. However, Brazilian beans landing in the US is telling.
Wheat
Wheat is at the stage where many analysts are counting how many times, they can kill it. However, we all know it has 9 lives in almost every corner of the world. Cold weather will surely have an effect on it in the northern hemisphere, but spring will help tell that story. Russian export taxes will limit some Russian wheat reaching export markets, which does help with prices. As it is, SRW wheat prices hit 6-year highs in January and are holding support.
In Ontario, this means over $7 plus new crop wheat for Ontario producers. With 1.1 million acres of wheat planted last fall, its shaping up to a good harvest scenario on paper. Needless to say, emerging from winter dormancy will help tell that story. We are at least a month to six weeks away from that reality.
The Bottom Line (cont.)
It goes without saying the value of the Canadian dollar continues to add stimulus to already high grain futures prices. This is one of the biggest differences between now and the higher prices we saw during the 2012 drought year, when futures prices went higher, but the Canadian dollar was at par levels. The Canadian dollar fluttering at the .7867 US level is a long way from par levels and looking ahead it’s, anybody’s guess how that will change. As per usual, the loonie’s value always works in an inverse fashion to the US dollar. Interest rates in Canada are expected to be stable. It simply bodes well for Ontario grain prices. Managing the volatility in the Canadian dollar and our grain futures prices will continue to be our grain marketing challenge.
In the next few weeks, the USDA will refocus its new crop acres prognostications for the 2021/22 crop year. Preliminary acres numbers will be released in late February, official estimates will come on March 31st with its prospective plantings report. It’s always been expected that 2021 US soybean acres would be off the chart, possibly up to 90 million acres vs the 83.1 million acres last year. Corn acres might head upward of the 90.1 million acres we saw last year. Needless to say, these 2021 acres will start filing in the supply void. Never underestimate the ability of the American farmers to produce in abundance. This potential needs to be top of mind as we hone our marketing plans further.
China is now going into their Lunar New Year celebrations, which should mean quiet market news from them until it’s over. As is, US exports have been very strong, thanks to China, but also to Mexico, Costa Rica and Japan. This will continue as American corn is the one of the only games in town until the Brazil Safrinha crop comes on sometime in July 2021. However, wet weather at the moment in Brazil is delaying the planting of some Safrinha corn pushing that supply issue out into the future by a few weeks. Needless to say, there is a world of production risk ahead to get that supply to market. It will be the market’s job to measure that risk with prices to make it all happen.
The road ahead for Ontario grain farmers is pockmarked with many pitfalls on our road to harvest 2021. However, unlike a lot of years, that road in 2021 at the present time is also aligned with many profitable marketing opportunities. We’ll take that. Let’s hope we are emerging from the shroud of Covid19. In fact, maybe fall harvest 2021 does represent the light at the end of that tunnel. As we look ahead, it’s important to adjust and gauge your grain marketing plan further. Daily market intelligence will remain key for our greater success.
