US and World
Planters have been rolling across both United States and Eastern Canada over the last month. Benign weather across the American corn belt has resulted in tremendous planting progress in both corn and soybeans. The general market bearishness, which has been reflected over this time, was maintained because of the good weather in the United States. As of May 11th, 75% of US corn had been planted compared to 57% of the previous five years average. US soybeans were 29% planted compared to the previous 5 year average of 24%.
As planters rolled, the USDA chimed in with its May 12th USDA crop report. The May report gave us our first indication of new crop ending stocks. In the May report the USDA forecasted farmers would produce 13.6 billion bushels of corn with an average of 166.8 bushels per acre in 2015/16. The USDA sees 2015/16 corn ending stocks declining to 1.746 billion bushels. This is taking place when corn demand has grown to 13.760 billion bushels in 2015/16, another record. The ending stocks to use ratio for 2015/16 came in at 12.7% compared to 2014/15, which was 13.6%.
In the soybean complex the USDA boosted 2015/16 ending stocks to a whopping 500 million bushels. This was up substantially from the 350 million bushels for 2014/15. The USDA forecast soybean production to come in at 3.850 billion bushels, which was down 119 million bushels from the 2014 crop. USDA also forecasted an average yield for soybeans at 46 bushels per acre. The US soybeans stocks to use ratio for 2014/15 came in at 9.4%, while the 2015/16 stocks to use ratio came in 13.2%. The USDA also left Brazilian production at 94.5 MMT, but boosted Argentinian production to 58.5 MMT. However, in 2015/16 the USDA expects Brazil to produce 97 MMT of soybeans and Argentina 57 MMT. US total wheat production is set at 1.47 billion bushels, up 7% from last year.
On May 15th, corn and soybean nearby futures prices were lower and wheat higher than the last report. Corn futures had the July 2015 futures at $3.65 a bushel. The December 2015 corn futures were $3.82/bushel. The July 2015 soybeans were at $9.53 bushel. The July 2015 Chicago wheat futures closed at $5.11 a bushel. The Minneapolis May 2015 wheat futures closed at $5.61 a bushel with the September 2015 contract closing at $5.72 a bushel.
The nearby oil futures as of May 15th closed at $59.69/barrel up from the nearby futures of last month of $55.74/. The average price for ethanol on May 15th in the US was $1.99 a US gallon vs. last month at $1.90 a US gallon.
The Canadian dollar noon rate on May 15th was .8326 US up from the .8177 US reported here last month. The Bank of Canada's lending rate remained at 0.75%.
Planting progress in Ontario has been substantial as of May 15th across the province. There may be a few exceptions with Essex County being one. Essex County has been wet for most of the spring and producers there are anxiously waiting to get into the fields. There may even be some cutback of corn acres in Essex County this year because of the late calendar date. In the rest of the province corn planting is close to complete and soybeans are rolling in everywhere.
In Ontario Statistics Canada is projecting corn acreage at 2.1 million acres and soybeans to actually drop to 2.9 million acres this year. With corn prices down this is somewhat of a surprise, but good planting weather may see this come to fruition. Depending on weather moving forward, this may shape up as another year where Ontario produces a record total corn production.
That production may be weighing on basis levels now and in the future across Ontario. Basis levels have retreated for corn, soybeans and wheat over the last month as the Canadian dollar has found renewed strength, actually gaining a nickel against the US greenback over the last two months. This foreign-exchange calculation was very favorable to producers last year and remains so. However, the loonie goes up and down and in the last eight weeks it showed us how cash prices will depreciate with a more aggressive Canadian dollar.
Old crop corn basis levels are .45 to .88 over the July 2015 corn futures on May 15th across the province. The new crop corn basis varied from .10 to .85 over the December 2015 corn futures. The old crop basis levels for soybeans ranged from $1.35 cents to $1.68 over the July 2015 futures. New crop soybeans range from $1.05 to $1.40 over the November 2015 soybean futures. The GFO cash wheat prices for delivery to a terminal on May 15th was $7.65 for SWW, $6.69 for HRW, $5.91 for SRW and $6.33 for Red Spring Wheat. On May 15th the US replacement price for corn was $4.78/bushel. You can access all of these Ontario grain prices by viewing the marketing section.
The Bottom Line
With standing orders in place and planters rolling over the last month sometimes marketing can take a step back. However, sometimes not very much happens and that was the case in the futures market over the last month as corn and soybeans traded sideways to down and wheat after a one day $.32 rise based on some Chinese news ended up. Needless to say, marketing remains one where we need daily market intelligence to capture future profit opportunities. The late spring to early summer in 2015 is no different than we have faced before. The question is can the market bears be slain?
There is no question as a mid May 2015 many analysts think that is a tall order. Globally, everybody like producing $7 corn and $17 soybeans, but at the end of the day production has been raised almost everywhere giving us some of the onerous supplies we have today. This has been exasperated to some extent in late 2014 in early 2015 from an effervescent rising US dollar. However, recently the US dollar has fallen back to almost 4-month lows giving some hope to commodities. With benign weather continuing in the United States, there is been little news for market bulls.
So in many ways, we are grasping for straws with regard to bullish factors that will send the market higher. Clearly though, it will happen at a certain point and these factors may be in incubation now. For instance there has been an El Niño event declared for Australia, which often serves as a significant benchmark in the world wheat market. This dynamic alone can send ripple effects throughout other agricultural commodities and usually has weather affects on North and South America too.
The May 12th USDA report didn't help us out with those bullish factors. In fact, US soybeans with a 500 million bushel 2015/2016 ending stock number were extremely bearish. Ditto for the USDA's estimate of Brazil soybean production for 2015/16 at 97 MMT. However, USDA also predicted a corn yield of 166.8 bushels per acre, which would represent the second-largest ever. It is unlikely that we get those two years in a row.
Commodity Specific Comments
The corn in the US looks very good at this early stage. Of course, that is a very good thing especially if you need to satisfy the record demand that we see for US corn. The May 12 USDA report pegged corn demand at a whopping record of 13.760 billion bushels outstripping total production this year of 13.630 billion bushels. So ending stocks will decrease, even more so depending on new crop weather.
Despite that, corn prices are cheap and this alone should spur more commercial buying at a time when the noncommercial buyers have gone net short in corn. The October low of $3.46 remains in place, but we are getting very close.
The July 2015-September 2015 corn futures spread are -7 cents, which represents a neutral commercial outlook. The July contract is now trading in the lower 8% of the last five-year price distribution range. Seasonally, corn futures tend to trend down through early July. Of course, the July 4th weekend, like the Memorial Day weekend in the United States can be explosive for corn prices.
The soybean market is the one market that may serve as a drag for both wheat and corn if the crop gets in trouble with summer weather. The 500 million bushel ending stocks figure for 2015/16 in the United States combined with the 97 MMT 2015/16 Brazilian soybean crop production is only a theory now, but it will keep a shadow over new crop prices.
Informa Economics came out with their soybean acreage prediction for 2015 this past week at 87.2 million acres, far above USDA's prediction of 84.6 million acres. If this is realized going into the June 30th USDA report, it will add to supplies, which are already overburdened. Thankfully, demand remains strong, with both exports and crush.
The July 2015 to August 2015 soybean futures spread is inverted, bullish at .0675 cents US. This reflects strong commercial buying for soybeans. Seasonally the soybean futures market tends to trend sideways through mid-June. The July contract is currently trading in the lower 4% of the last five-year price distribution range reflecting just how cheap soybeans are compared the last five years.
Has wheat bottomed out? Of course the question can be asked does it ever bottom out because it is grown in so many places in the world. However, in mid-May wheat actually showed signs of life with both China and India supporting lower wheat domestic stocks. This sent wheat prices higher in Chicago and could serve as a symbol for future price direction. The El Niño event in Australia may play out as well.
Wheat is growing actively in Ontario. However, some fields did receive their glyphosate treatment after tough planting conditions last fall made for a less than stellar stand the spring. With early spring planting activity across Ontario, it heightens the chances of good early wheat planting conditions this coming fall.
The Bottom Line (cont.)
The Canadian dollar can be a very fickle market factor. In late 2013 and largely in all of 2014, it can be argued that the declining Canadian dollar was the story for Ontario grain prices. As grain futures declined in Chicago the decline in the Canadian dollar mitigated much of that loss through basis appreciation. However, after reaching a low of .77810 US on March 18th, the Canadian dollar is now trading at .8324 as of May 15th taking away much of the cash price gains over the last several months. Basis values for grains in Ontario have moved lower because of it.
There are several factors that may affect this going into 2015. In fact, the Bank of Canada might cut interest rates again which would be negative for the Canadian dollar. At the same time the US Federal Reserve is expected to increase interest rates, which would be positive for the US dollar and negative for the loonie. Needless to say, the Canadian dollar is approximately 6 cents higher now than it was in March. Finding that foreign exchange sweet spot for Canadian grain producers will likely remain a marketing challenge in 2015.
It is almost like a broken record (or broken hard drive), but crop weather now and in the summer will define crop prices moving forward. The bearish script that has been written so far assumes blue skies and rain ahead. Needless to say, it never really happens that way. There is much production risk ahead and marketing plans should reflect that accordingly.
That may result in making those marketing decisions when the griddle is hot. In other words, sometimes marketing opportunity is real, but fleeting. Daily market intelligence remains key. The challenge, as always for Ontario grain producers is to measure all the different marketing factors that are at play affecting both futures and basis as we move ahead. The June 30th USDA report looms as a major market mover looking ahead. Of course, “benign weather” or “hot and dry” does too. Risk management never gets old. As we head into late spring and summer managing these variables will become even more real.
Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times per year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications.