US and the World
February is a time when the Great North American corn belt is usually under a lot of snow and ice. It is the time where great looking crops are a bit far in the distance. However, this year the mild winter across North America has hinted at an early spring. Needless to say, in the southern hemisphere it’s completely the opposite as soybeans are being harvested, corn is being planted and crops are moving on. Our weather continues to be a distinguishing factor in both the northern and southern hemisphere as our grain world adjusts to even bigger supplies. On February the 8th the USDA released their latest WASDE report.
The focus of this USDA report to some extent had traders fixated on what was happening in South America. Weather has been uneven in South America with high heat and dryness and disappointing soybean yields early. However, the USDA dropped Brazilian soybean production by only 1 MMT down to 156 MMT. This was 6.5 MMT higher than the Conab (USDA equivalent in Brazil) estimate. USDA drop Brazil’s corn production down to 124 MMTs, while the Conab estimate was 10 MMTs below that. As it is, with such a dichotomy between the US and Brazil estimates, it is likely we can expect USDA to continue to lower South American estimates into the next few months.
USDA kept American corn production numbers the same as last month with domestic production at 15.342 billion bushels. However, they increased the corn ending stocks by 10 million bushels up to 2.172 billion bushels. This was caused by the food, seed an industrial use being reduced by 10 million bushels. USDA increased US soybean ending stocks up to 315 million bushels which is up 35 million bushels from last month’s estimate. This was a reflection of a 35 million bushel cut in soybean exports. Globally, ending stocks increase to 116.03 MMT. Soybean production in Argentina remained at 50 MMT, the same as last month. The USDA also increased their domestic wheat ending stocks to 658 million bushels, a slight increase from last month.
On February 10th, corn, soybeans and wheat were lower than the last Market Trends report. March 2024 corn futures were at $4.29 a bushel. The March 2024 soybean futures stood at $11.83. The March 2024 Chicago wheat futures closed at $5.96 a bushel. The Minneapolis March 2024 wheat futures closed at $6.84 a bushel with the Sept 2024 contract closing at $6.90 a bushel.
The nearby oil futures as of February 10th closed at $76.84/barrel up from the nearby futures recorded in the last Market Trends report of $72.68/barrel. The average price for US ethanol in the US was $2.04 a US gallon, the same as last month.
The Canadian dollar noon rate on February 9th, 2024, was .7431 US, down slightly vs the .7470 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
In Ontario some farmers might like to make the argument that spring is almost here as we have experienced a very mild winter so far except for a small stretch of January. We need to be reminded but we’re still in the middle of February and there can be a lot of snow and ice yet this winter. However, much of the winter is in the rear-view mirror as we look into our new crop season.
Ontario basis levels for grain have decreased since the last Market Trends report. However, the decrease in the soybean basis has not been as accentuated as it is for corn. Simply put, Ontario corn producers are some of the most efficient in North America popping out big yields. This is reflected in the amount of old crop corn on the ground and unsold in Ontario, depressing basis values.
As of January 17th 2024, Agricorp has reported Ontario 2023 average yield in soybeans of 53 bushels per acre which is above the 10-year average. The Ontario average corn yield number has not been compiled yet but is trending above the 10-year average of 184 bushels per acre. These are impressive yields and as we move on into the future Ontario will need more storage capacity. It is being built continually across the province, the latest being newer grain elevator facilities in South Essex.
Old crop corn basis levels are $0.45 to $0.72 over the March 2024 corn futures on Feb 10th across the province. The new crop corn basis varied from $.80 to $1.20 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.85 cents to $3.15 over the March 2024 futures. New crop soybeans basis levels range from $2.78-$3.10 over the November 2024 futures. Ontario SRW wheat prices are in the $7.13 range. On February 10th the US replacement price for corn was $5.91/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
We’re in a tough place, there is no question about it. Prices are lower than we have been accustomed to over the last few years and we never got the post-harvest rally that so many analysts were expecting. At the same time the large fund players who represent non-commercial demand are increasing their short positions, which means they are expecting prices to go down further. It almost seems that market bears are all on one side of the boat and we know what happens if it gets too heavy.
At the same time this is happening we have production in full swing in South America where about 1/3 of the Safrinha corn crop has been planted. It is also getting good moisture but at the same time you must remember that soybeans are being harvested and corn is being planted in the same fields. About 75% of Brazil’s corn production comes from the Safrinha crop so any weather going forward could impact the amount of production coming out of Brazil into world markets. At about the same time the Argentinian corn crop is rated at 85% good or excellent and 5% of the crop was considered mature. This is completely different than last year when the Argentinean crop burned up.
USDA did lower their estimate of Brazilian crops but not as much as Conab and other private forecasters. However, there are still a lot of beans down there in South America and this is weighing on prices. Chinese demand has been softening lately as the Chinese economy is going through some uneven times. The uncertainty of the crop that is coming off in Brazil now as well as this more difficult situation in China is making for an unfriendly pricing environment for soybeans.
Keep in mind that it looks like the script is written for lower grain prices, but we’re not necessarily there yet. In other words, there still is time for the weather to impact South American crops. However, it can be difficult to blunt all of the emotional thought that comes with all this bearish news. There are always “Black Swans” out there, but of course because of their nature we never know when they will be coming.
Commodity Specific Comments
Corn has been in bearish territory for a while, and it continues. You can make an argument that many farmers were hoping for the corn carryout number to be trending down, but the USDA report actually put it in the other direction increasing corn carry out by 10 million bushels. The funds have large short positions, and the commercials are the opposite. US farmers are holding on tight to their corn.
The Safrinha Brazilian corn crop is being planted or is growing in the southern hemisphere. Keep in mind that this might provide some type of fundamental shift in the corn price if that crop gets in trouble. However, at the present time there are a few issues but nothing on the horizon. Will “hot and dry” hit that crop or will it be benign weather into harvest?
The December 2024 corn contract is currently priced at 11.25 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.
There is some conjecture on the differences between the US crop estimates looking at Brazil and all the other private estimates which say the Brazilian crop is much lower than projected. Keep in mind it’s all hard to say, but it is still a very large crop compared to the past history coming out of South America.
On top of the diversion between the crop estimates in South America, China has not been buying soybeans as it once did and in an election year there is even talk about tariffs. We certainly don’t want to go there. As it is, the Chinese economy is slowing making purchases of Brazilian soybeans brisk compared to US ports. Part of the issue is the Chinese voracious appetite for soybeans is cooling, while our production has increased globally. Soybean prices have responded in concert.
The November 2024 soybean contract is currently priced 19.25 cents below the March 2025 contract which is considered 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.
In many ways wheat is a continual global story. As we all know wheat is either planted or harvested in every month of the year across the globe. Shortages are filled quickly, and surpluses are almost into perpetuity. Russia continues to put more wheat on the market. Wheat futures have been trading sideways since the end of December, which is unusual. However, at a certain point wheat will break out in either direction and producers need to be cognizant of that.
With this mild winter the 860,000 acres of Ontario wheat showed its face in much of Ontario, and it looks pretty good. However, as producers we know it’s not over and Canadian winter is likely to come back at least for an encore. This will likely determine how many acres are left going into the warmer months. $7.00 wheat no longer gets producers excited, but the Canadian dollar at $0.74 continues to provide stimulus to Ontario wheat prices.
The Bottom Line (cont.)
In Ontario the Canadian dollar continues to flutter in the 74 cent US range which add stimulus to Ontario grain prices. As always, it is hard to know what the future will be for our dollar. For instance, in a recent report the Bank of Canada said economic growth had stalled since the middle of 2023 as past interest rates hike continue to weigh on demand. Prior to this the bank said that consumer spending has slowed, and businesses had curtailed some of their investment and hiring plans. At the end of the day the Bank of Canada decided to keep their overnight interest rate at 5%, which has meant status quo for the loonie.
The wheat market continues to be a frustration for Ontario wheat producers as wheat futures prices are near 2-year lows. This is the same for March milling wheat prices in France. This is happening at the same time when global ending wheat supplies sit at 4.65 billion bushels outside of China. Russia continues to dominate this trade continually shipping wheat and keeping a lid on prices.
As February comes to an end and we get into March there will be a shifting gears for many looking toward the new crop year. One of the biggest events of the new crop year are the preliminary acreage numbers put out by the USDA on March 31st giving us in indication of supply in 2023/2024. Typically, on that day we have volatile prices and sometimes the price direction can be changed. As it is now, the price ratios have been favoring soybean acres over corn acres as we get closer to March 31st.
The challenge for Ontario farmers is to measure all of these market factors to enhance our grain marketing horizon. There’re still all kinds of geopolitical risks out there that could affect our markets. At the same time, we should never lose track of what might be happening in the Ontario cash grain market. At the end of the day, risk management never grows old and daily market intelligence will remain key. There will be many marketing opportunities ahead.