Market Trends Report – January & February 2024
Podcast: Play in new window | Download
Subscribe: Apple Podcasts | Spotify | RSS
US and World
It’s that time of the year again. January represents a time of cold, snow, ice, etc., etc. as the great North America corn belt hibernates over winter. Farm plans are being recalibrated and past cropping results reviewed. Meanwhile, marketing never stops. Prices have softened into 2024 under the burden of memories and basic fundamentals of big crops last summer. On January 12th, the USDA weighed in with their “final” estimate on how big last year’s crop really was.
USDA made big crops bigger. US corn production was set at a record 177.3 bushels per acre which was well above the pre report expectations. Total US corn production is now estimated to be 15.34 billion bushels. Soybeans also were increased to 50.6 bushels per acre putting total production at 4.17 billion bushels. Higher corn production translates into higher ending stocks which now sit at 2.162 billion bushels, which is up 31 million bushels from the December report. Globally, USDA lowered Brazil’s corn production by 2 MMT to 127 MMT. Argentina’s production was held at 55 MMT.
USDA’s soybean estimate was higher, but still the smallest soybean crop in four years. 4.17 billion bushels was still very good for last year’s smokey summer. With the increase in supply, US soybean ending stocks for 2023/24 were increased to 280 million bushels. USDA increased the Argentinian soybean production by 2 MMT up to 50 MMT, while reducing the Brazilian production 4 MMT to 157 MMT. American farmers planted 34.4 million acres to winter wheat this past fall, down 6% compared to last year and below the average pre-report estimate of 35.9 ma.
On January 13th, corn, soybeans and wheat were lower than the last Market Trends report. March 2024 corn futures were at $4.47 a bushel. The March 2024 soybean futures stood at $12.24. The March 2024 Chicago wheat futures closed at $5.96 a bushel. The Minneapolis March 2024 wheat futures closed at $6.99 a bushel with the Sept 2024 contract closing at $7.26 a bushel.
The nearby oil futures as of January 12th closed at $72.68/barrel up from the nearby futures recorded in the last Market Trends report of $71.41/barrel. The average price for US ethanol in the US was $2.04 a US gallon, down from the $2.11 last month.
The Canadian dollar noon rate on January 12th, 2023, was .7470 US, virtually the same as the .7479 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
In Ontario the mild winter continued into the new year but that soon changed as of mid-January. The earlier weather had given opportunities for farmers to finish corn harvest in eastern Ontario. However, there are still a few fields scattered across the province that have not been harvested and this is likely by choice. We move ahead hoping for snow cover over winter wheat and benign weather throughout the rest of this Canadian winter.
It is no secret that Ontario basis levels have retreated over the last few weeks reflecting lower corn futures prices but also a slightly higher Canadian dollar than the month before. It simply was a very big corn crop in Ontario this year likely to be at a record level. This is increasingly becoming a trend as Ontario producers are challenging yields and surpassing them in several of the American top producing areas.
Cash grain price levels have been impacted by the Canadian dollar which continues to flutter hitting around the 74 and 75 cent level US. However, it also reflects the local supply and demand within Ontario. We know that the supply of corn and soybeans is very high, and this will take quite a while to move out during the calendar year 2024. Soybean and wheat prices in Ontario will continue to be affected by foreign exchange fluctuation.
Old crop corn basis levels are $0.40 to $1.13 over the March 2024 corn futures on January 12th across the province. The new crop corn basis varied from $.85 to $1.02 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.83 cents to $3.15 over the March 2024 futures. New crop soybeans basis levels range from $2.76-$3.10 over the November 2024 futures. Ontario SRW wheat prices are in the $7.07 range. On January 13th the US replacement price for corn was $6.12/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
The USDA sure landed a very bearish report on grain markets. Not only was production raised for both corn and soybeans but also ending stocks were increased which settled heavily on prices. In many respects, this was not expected as the trade thought that there would be slight cuts to production. So, like any other time, when things are not quite as expected especially on an oversupply scenario prices retreated post report and it certainly set the tone for the rest of the month of January.
Keep in mind that there were a few glimmers of hope within the report, corn demand was actually increased for ethanol and feed and Brazil corn production was cut slightly. Keep in mind that we still have the Safrina crop to plant in Brazil which represents 75% of their total production.
Unfortunately, this bearishness in the market has been piled on by the noncommercial players in the market. Funds have been adding to their short positions whether that is in corn, soybeans or wheat which keeps the bearish domino going. At a certain point that will change, and we will go the other way, and everything might get exaggerated by the same players. However, in the winter of 2024 that seems unlikely under the current scenario.
This begs the question what should producers do in January and February of 2024 with regard to new crop coming up? For instance, we usually get a post-harvest rally which we didn’t get this year but eventually a rally is going to come. That combined with a low Canadian dollar might create the right opportunity to forward contract grain. Keep in mind, there is lots of market risk going forward. Seasonality tells us that prices should be higher or highest for new crop contracts in June and July.
Commodity Specific Comments
Corn
In many respects we should not be surprised by the big corn numbers especially when we planted over 94 million acres this past year in the United States. The smoky summer of 2023 produced 177 bushels per acre of corn. So, what could we do if we got a better growing season in 2024? USDA projected yields of over 180 bushels per acre would certainly be part of that scenario.
In Brazil, weather has turned wetter and ultimately when they get to plant the Safrina corn crop this might mean that it will go in later pushing pollination into a dry stretch. However, at this point it is still all just a theory, but it is likely the next major flashpoint for price appreciation will come February or March.
The March corn contract is currently priced at 12 cents below the May 2024 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 March futures contract is at the 25th percentile of the past five-year price distribution range.
Soybeans
Soybean demand is still pretty good, and the USDA substantiated that in their latest report. There was also a positive footnote with regard to their view of Brazil soybean yield dropping. However, it pales in comparison to some of the other private reports coming out of Brazil which put that soybean crop much lower. Conab, the Brazil crop rating agency has been at 155 MMT soybeans.
Are we going to run out of soybeans? Well, stop laughing, at least that’s the way it feels now. Argentina had almost half of a crop last year, but they are back up in production this year and even if the Brazilian the crop is down, we are still going to have a lot of soybeans. What’s needed is some uneven weather in South America at the moment and that is not in the forecast.
The March 2024 soybean contract is currently priced 11.5 cents below the May 2024 contract which is considered bearish. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The July 2024 soybean contract is currently at the 46th percentile of the past five-year price distribution range.
Wheat
Wheat is not a bullish story and of course that is hardly anything new. At the present time our wheat acres are subject to adverse winter weather that be in the United States, or Europe or the Black Sea region. Very low temperatures and adverse conditions can have a detrimental effect on wheat in the northern hemisphere. Of course, it will always be hard to judge those conditions now but if it does become a concern it should show up in wheat futures prices.
Back in Ontario, our 860,000 acres of wheat is currently being impacted by winter weather. Snow cover has not been great up until mid-January but that surely will change. It is always hard to know how much wheat will be leftover come spring. Currently wheat prices in Ontario for old crop are slightly over $7.00 a bushel. This Ontario cash wheat price will always be mainly affected by the value of the Canadian dollar.
The Bottom Line (cont.)
The Canadian dollar continues to flutter around $0.75 US which continues to add stimulus to Ontario cash grain prices. The Bank of Canada has mused lately about not raising interest rates in the immediate future, which should have a stabilizing effect on the Canadian dollar. At a certain point, it remains the saving grace for Ontario grain prices. It would certainly be a different scenario if we had the Canadian dollar back in the 80 and 90 cent level US with a lower grain futures scenario.
There remains geopolitical risk going forward in all our grain markets. We still have Russia and Ukraine but of course it is wintertime over there even in a white-hot war. For the most part, price spikes coming out of that war are dialed in now and we are more concerned with the effect of the Russian winter on its wheat crop. Of course, there is also the problems in the Middle East which will continually cause underlying tension in markets.
It is not the rosiest scenario for grains no question. There are lots of analysts who are talking about corn being lead with a $3 mark instead of a $5 mark. We haven’t had that post-harvest rally but generally speaking we get a rally in February. We also know that seasonality tells us that prices rise in June and July. So, keep in mind that despite the less-than-optimal grain price outlook, better things can happen.
As we move ahead into February the market will surely be trading the potential for a big harvest in South America. At the same time Sabrina corn will be going into the ground starting in February. The challenge for Ontario grain producers will be to keep abreast of information coming out of that area for possible movement in prices. Then there are all the other market factors that need to be balanced including the value of the Canadian dollar. At the end of the day, risk management never grows old and daily market intelligence will remain key.
