Market Trends Report for June-July 2017
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US and the World
It is a critical time of the year for grain markets. Across the US corn belt as well as Ontario, farmers have been planting since mid April. It continues. As of May 28th 91% of US corn has been planted and 67% of US soybeans. There are wide variations on this theme as the Eastern and Southern corn belt has seen more of its share of wet weather causing many planting delays. As we move into late June it is a time where the US crop is setting up to be made and marketing decisions for that crop are accentuated by market volatility. The June 9th USDA report gave us another indication of the supply of grain in the US and around the world.
On June 9th USDA left US corn and soybean production unchanged from earlier reports. However, they increased both the old crop and new crop soybean ending stocks both domestically and around the world. There was a 1.91 million bushel reduction in soybean crush, which resulted in old crop ending stocks coming in at 450 million bushels. New crop soybeans ending stocks were also bumped up to 495 million bushels. The USDA in a somewhat surprising move increased total wheat production to 1.824 billion bushels, which was up 3.8 million bushels from last month’s report.
Corn production is still pegged at 14.065 billion bushels with new crop ending stocks remaining at 2.11 billion bushels. The global corn production for 2017/2018 is projected at 1.03186 MMT, which was down slightly from last month’s report. The Brazilian corn crop was increased to 97 MMT and their soybean crop boosted to 114.0 MMT.
On June 11th, corn and wheat futures were higher than the last Market Trends report. Soybeans futures were slightly lower. July corn 2017 futures were at $3.87 a bushel. The July 2017 soybean futures were at $9.41 a bushel. The July 2017 Chicago wheat futures closed at $4.45 a bushel. The Minneapolis July 2017 wheat futures closed at $6.06 a bushel with the September 2017 contract closing at $6.16 a bushel.
The nearby oil futures as of June 9th closed at $45.83/barrel down from the nearby futures of last month of $50.33/barrel. The average price for ethanol on June 9th in the US was $1.73 a US gallon up from last month at $1.70 a US gallon.
The Canadian dollar noon rate on June 9th was .7433 US up from 7383 US reported here last month. The Bank of Canada’s lending rate remained at 0.50.
In Ontario the corn crop has mostly been planted as of June 10th. In some areas of the province where rain delayed planting some June corn acres were put in. About 80% of the province’s soybeans have also been planted as of June 10th. There are regional variations on this theme depending where rain has inundated planting. For instance there has been replanting in Lambton, Chatham Kent, Essex, Niagara and Haldimand Counties, where soybeans became entombed underneath hard soil crusts.
Statistics Canada had predicted 3 million acres of soybeans and 2.2 million acres of corn to be planted in Ontario the spring. However, it is likely that acres were shifted into soybeans based on the tough planting conditions in late April and early May. The 2.2 million acres of corn seemed optimistic at the time and is likely much closer to 2 million acres or below. The actual Ontario corn acres number will go a long way in determining corn basis levels in 2017 in 2018. With the crop off to a rough start in some parts of the province, it is unlikely to yield as well as 2016. New crop corn basis levels in Ontario partially reflect this. As we move ahead, Ontario weather will further refine this measurement.
The Ontario wheat crop continues its journey toward harvest time with T3 fungicide applications taking place across the province. There have also been reports of armyworms and the thresholds for control are widely published. The Canadian dollar at 74.33 US cents continues to be a stimulus for wheat prices.
Old crop corn basis levels are $.65 to $1.20 over the July 2017 corn futures on June 9th across the province. The new crop corn basis varied from .95 to $1.25 over the December 2017 corn futures. The old crop basis levels for soybeans range from $2.65 cents to $2.80 over the July 2017 futures. New crop soybeans range from $2.25-$2.70 over the November 2017 futures level. The GFO cash wheat prices for delivery to a terminal on June 9th were $5.80 for SWW, $5.73 for HRW, $5.73 for SRW and $6.81 for Red Spring Wheat. On June 9th the US replacement price for corn was $5.59/bushel. You can access all of these Ontario grain.
The Bottom Line
In terms of timing, June can be a very key month with regard to our grain marketing. For instance, last year on June 18th corn prices hit their highs for the year. Up until then the market was unsure what the crop would be like and had added risk premium to both futures and cash prices. Is 2017 shaping up like 2016 with regard to marketing grain? Of course, nobody knows, but there are many similarities between grain stocks and conditions this year versus last year.
We are now in a weather market for corn and increasingly for soybeans. Mid-June, the July 4 weekend in the United States and pollination weather in mid July represent a critical time for US corn development. The market over the next few weeks will be measuring this. Capturing the trend in market psychology will be very important as will daily market intelligence.
The June 30th USDA opinion about actual planted acres will be of critical importance. There has been planting delays in many replants throughout the United States corn belt. The March estimate of 89.5 million soybean acres is a record and we must be cognizant that it might grow bigger. Needless to say, both the corn acres number and the soybean acres number announced on June 30th will likely initiate a market flashpoint especially if there is a surprise.
It goes without saying that any extreme summer weather will impact this 2017 crop price scenario. Every assumption about currencies, planting conditions, ethanol demand, exports, crush needs to be weighed against the phrase “hot and dry”. Simply put, if that phrase gets into the 2017 market vernacular, all bets are off, until it rains.
Commodity Specific Comments
The corn market is entering a very critical time very similar to the last two years. For instance, last year the corn market topped out on June 18th. It was a time with ample old crop supplies but much uncertainty in new crop fields. When the rains came the market slid down into its lower to sideways range for the last 10 months. The same conditions exist in early June 2017 and producers should be cognizant of that.
The market seems to have absorbed any news about tough planting conditions in the US mid west. However, the market always seems to get much more excited about “hot and dry” conditions. As we move into the middle of June corn will remain in a weather market until the heat breaks or the rains comes. Standing orders for new crop corn will be helpful within this anticipated volatile market.
The July 2017 September 2017 corn futures spread is currently -8 cents, which is considered neutral. The July corn contract is currently priced in the lower 38% of the last five-year price distribution range. Seasonally, the corn market tends to trend down through August.
Soybeans have bounced off their Brazil harvest lows. Prices have been under bearish pressure because of the big US crop last year as well as the record Brazilian crop. Still, demand is very strong to keep price at the $9.40 level.
This is happening in an environment, where the US crop is yet to be planted totally. There is much risk ahead especially with soybeans, as August rains are so critical. This is happening in a price environment where global soybean new crop beginning stocks are rising.
The July 2017 August 2017 soybean futures spread is -3 1/2 cent as of June 9th. The July contract is currently priced in the lower 15% of the last five-year price distribution range. Seasonally the soybean markets five-year index shows soybeans tend to trend up through late June.
Wheat continues to suffer under its bearish market conditions, but has shown some resilience over the last few weeks. That has been especially so in hard spring wheat, which has been rallying on the Minneapolis market. There is a premium for high-protein spring wheat and that is likely to continue into this crop year. Dry weather in the northern Plains and in Western Canada is helping this futures price rise.
In Ontario prices have continued to be stimulated by the low Canadian dollar and any futures rise will be accentuated. Prices now are higher than they were a year ago at harvest time. The crop continues on its road to harvest with fungicide applications taking place at different intervals across the province.
The Bottom Line (cont.)
There is much uncertainty yet to be priced in the market. However, we cannot negate the rather large ending stocks for grain that are being forecast now, corn at 2.11 billion bushels and soybeans at 495 million bushels. These stocks are onerous and if we get summer rains and benign weather they will likely keep prices down. However, it is all based on normal yields and March acreage projections. So we need to balance all of these expectations as we look ahead.
The US dollar has been hovering in the 96 and $.97 range on the index, which is bullish for grains futures. However, it is an uneven time for American influence in the world as the Trump administration forges its own way. The Brazilian Real and Canadian dollar have been gyrating off those values. It is important to understand how values move against each other (usually in inverse from the US dollar) to foster greater clues on grain price direction.
Of course, “hot and dry” or lack of that phrase at this time of year will define the grain marketing narrative. It will be important to work your marketing plan in concert with your strategy regarding Canadian dollar direction. The Canadian dollar has been fluttering between 72 and $.74 US lately. It continues to add stimulus to Canadian grain prices, especially soybeans and wheat.
It’s time to really focus those marketing plans. Flashpoints to come will be the June 30th USDA reports releasing a plethora of information with regard to acres, stocks and yields, which could be explosive for prices. The July 4th weekend, which represents a three-day holiday from market action sometimes, can actually be pivotal for grain market direction once markets open up. Key for Ontario producers is to take advantage of the opportunity, where they are comfortable and profitable marketing their grain. Risk management never grows old. Daily market intelligence will remain a must.