US and World
It is that time of year when combines are rolling. Across the great North American corn belt harvest is in full swing especially in the southern portions of the American Midwest. The US crop has had huge potential all year with successive USDA reports increasing yields. The actual litmus test is when combines hit the fields with anecdotal yield accounts. This will surely show up in future USDA reports.
On September 12th the USDA weighed in with their latest WASDE report. The USDA increased US national corn yield 2.9 bushels per acre pushing it up to 181.3 bushels per acre. This pushed the production estimate up to 14.8 billion bushels which is 2% higher than August it up 2% from last year. On the soybean side of the ledger the USDA increased US national soybean yield by 1.2 bushels per acre to 52.8 bushels per acre. This will total out at 4.69 billion bushels of soybeans. The USDA forecasts all wheat production to come in at 1.88 billion bushels with new crop ending stocks of 135 billion bushels. Those figures were unchanged from their August estimates.
These are big crops are record crops compared to history. The new yield figures increased the new crop corn ending stocks to 1.774 billion bushels, which is up 90 million bushels from the USDA August estimate. USDA actually increased feed and residual use by 50 million bushels, ethanol use by 25 million bushels and exports by 125 million bushels. Total use for corn is projected to be 15.105 billion bushels, which in the annals of writing market trends over an extended period of time is simply an incredible number.
The estimated new crop soybean stocks have ballooned to 845 million bushels, which is an increase of 60 million bushels from last month’s estimate. Global ending stocks for wheat came in at 261.29 MMT, which was 5% below last year’s record total.
On September 14th, corn, soybeans and wheat futures were lower than the last Market Trends report. December 2018 corn futures were at $3.51 a bushel. The November 2018 soybean futures were at $8.30 a bushel. The December 2018 Chicago wheat futures closed at $5.11 a bushel. The Minneapolis December 2018 wheat futures closed at $5.72 a bushel with the September 2019 contract closing at $6.09 a bushel.
The nearby oil futures as of September 14th closed at $68.99/barrel up from the nearby futures of last month of $67.63/barrel. The average price for ethanol on September 14th in the US was $1.50 a US gallon down from $1.61 last month.
The Canadian dollar noon rate on September 14th was .7674 US, up slightly from the .7626 US reported here August 10th. The Bank of Canada’s lending rate remained at 1.25%.
In Ontario, the droughty summer in some parts of the province was alleviated to a great extent in late August as rains inundated the province. Both corn and soybeans are slightly ahead of normal with harvest about ready to ramp up across the province. As combines roll in Ontario, wheat planting will follow.
The crop looks big, possibly another record in 2018. Private yield estimates have projected corn yields close in the 180-200 bushel range for many areas in Ontario with an average that should challenge last year’s record yield. Basis values for new crop have been maintained even as futures have fallen. As the crop matures, spot bids for corn will surely arise for early harvest. As is, Ontario is set for another year of huge corn supplies, which will need to find a home.
The saving grace for basis levels in Ontario continues to be the value of the Canadian dollar fluttering in the $.76 US level as of September 14th. With futures prices at their lowest level in about nine years, our Canadian dollar has been a major stimulus to Ontario cash prices.
Old crop (2018) corn basis levels are $1.10 to $1.25 over the December 2018 corn futures on September 14th across the province. The new crop (2019) corn basis varied from .85 to $1.10 over the December 2019 corn futures. The old crop (2018) basis levels for soybeans range from $2.45 cents to $2.65 over the November 2018 futures. New crop (2019) soybeans range from $1.81-$1.95 over the November 2019 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on September 14th were $6.20 for SWW, $6.40 for HRW, $6.20 for SRW and $6.28 for Red Spring Wheat. On September 14th the US replacement price for corn was $5.09/bushel. You can access all of these Ontario grain in the marketing section at http://gfo.ca/marketing/daily-commodity-report/.
The Bottom Line
As USDA reports go, the September 12th report was an outlier because increased yield more than expected. It really shouldn’t have been a surprise as this year’s crop has had adequate moisture and temperatures were mild in July and August. Last year the crop was 176.4 bushels per acre in this years 181.3 is testament to the trend. Six straight years of good weather has been very helpful.
Seasonal tendencies are what they are and it is likely that as harvest grows more widespread that we go into the seasonal price lows were both cash and futures. However, last year at this time we had ending corn stocks at 2.5 billion bushels, much higher than today. (1.774bb) That represents hope for corn prices especially at a time when South American corn production is down.
In the United States soybean demand in the cash market is drying up substantially especially in the western corn belt period however, this is not a surprise based on the historic trend of shipping to the Pacific Northwest ports by rail. It is one of the best examples in the US of the Chinese soybean tariffs affecting demand. Needless to say, cash soybean prices with a $6 handle or even no bids for cash beans are evident. The US government has responded with direct subsidies to US grain farmers through market facilitation payments, $1.65 for half of 2018 soybeans and a penny a bushel for corn on half 2018 production. No special payments are in Ontario’s future.
It is easy to be pessimistic, but having said that, there is reason for optimism. Sure, soybeans have some real problems especially when you consider the trade war between the United States and China. However, US corn usage is pegged at 15.105 billion bushels, which represents the best demand for corn in history. At a certain point something is likely to break loose to send prices higher. Last year it was the problems in Argentina, but with this corn demand steamroller in full overdrive, at a certain point it will happen.
Commodity Specific Comments
The 181.3 bushels per acre USDA yield was consistent with the good crop seen all year in the United States, but was still above the trade expectation. With combines rolling, that number surely might change, but going higher shouldn’t be out of the question.
The lows in the corn price came last year with ending stocks of approximately 2.5 billion bushels. This year, ending corn stocks even with this record crop are approximately, 1.774 billion bushels, with a futures price of $3.50. In some ways, that doesn’t add up, but in other ways it does represent futures potential opportunities.
The December 2018 March 2019 corn futures spread is currently -.12 per bushel, which is considered bearish. The nearby December corn futures contract, is currently priced in the 23rd percentile of the past five-year price distribution range. Seasonally, corn prices tend to trend lower into October.
Soybeans are an old movie and we all know what that is. China, China, China is the buzz phrase. It is anybody’s guess when that will end, but clearly a long slog maybe in the works. Some American analysts have said the midterm elections in November may serve as a calendar benchmark for a trade deal, which may end tariffs.
African swine fever is muddying the water. China is the world’s largest consumer pork. Culling the herd, which can have obvious effects for soybean meal demand and soybeans themselves, can only control african swine fever.
The November 2018 March 2019 soybean futures spread as of September 14th .26.75 cents per bushel, which is considered very bearish. Seasonally, soybean prices usually tend to trend down into October. The nearby November contract is in the third percentile of the past five-year price distribution range. At that point, these prices are the lowest in 10 years.
The wheat market has been a bit frenetic with rumours all over the world about production and Russia wheat exports. In many ways, Russia always creates headlines surrounding their production and possible exports or lack thereof. Both ending stocks in the US and globally are down, which should help wheat markets in 2019. However, as of now, the specs might take wheat futures temporarily lower.
Wheat prices in Ontario to a terminal for 2019 are currently in the $6.68 range with prices at $7 and higher available earlier. This should stimulate wheat planting this fall, especially with an early harvest. Needless to say, Ontario farmers will be scrambling to get wheat planted earlier, as this is usually a key factor to higher yields.
The Bottom Line (cont.)
The trade war between the United States and China continues with a Bloomberg report September 14th saying President Trump had instructed his aides to continue with the push for an additional $200 billion of tariffs on Chinese goods. This certainly doesn’t bode well for the soybean market and that needs to be kept in mind. Basis levels in the United States are about at their weakest level in the last 11 years and this also has an effect on her Canadian cash price for soybeans. Of course, it all might change quickly in an early morning tweet.
For Ontario farmers, the Canadian dollar does help especially on soybeans and wheat. This has help keep the cash price of soybeans at approximately $10.75 a bushel and the price of corn at approximately $4.75 a bushel. The Canadian dollar continues to simply move in an inverse fashion against the US dollar. Of course, this complicates our marketing situation. It goes without saying, that it futures suddenly caught fire along with the value of the Canadian dollar, our cash price stimulus may be muted. It is what it is. Marketing with our eye on both futures and cash basis needs to be a priority.
There are the usual myriads of geopolitical factors that are weighing on the markets. For instance there is now after which needs no explanation to Ontario farmers. The American midterm elections do represent this year a significant litmus test for the Trump administration and the future of the trade war. With soybean stocks at 845 million bushels it is a bit of a head shaker especially when we realize that 200 million bushels is often thought of as satisfactory to meet the needs of the market. As I’ve said before, geo-politics matters to our grain prices, but in 2018/19 it’s going to matter even a little bit more to get our dynamic agricultural trading relationships back.
In Ontario, we’re poised for another big harvest. There will likely be some surprises, but expectations are high. 2018 has been a year of much lower prices, but much of that has come since the end of May. There has certainly been much crop contracted at much higher values, which was surely part of individual’s own risk management plan. The challenge for Ontario farmers is to continue working that marketing plan. Although the marketing horizon looks dark presently, it is fluid and will not stay the same. Market your crops when you’re profitable and comfortable. The road ahead will surely present itself with those possibilities.
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.