Market Trends Report – July & August 2024
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US and the World
It is that time of year again. Late July and going into early August represents a time when the crop is being made. The July pollination time period is usually one of the critical times for corn in the United States. Hot and dry can change everything. At the same time as we head into August, we all know that rain at that time of year can make a soybean crop. As of July 7th, USDA estimated the corn crop to be 68% good to excellent which is well ahead of last year’s pace of 55%. USDA is estimating soybeans to look 68% good to excellent up from 51% last year. On July 12th the USDA came out with their latest WASDE report.
USDA boosted US corn production to 15.1 billion bushels an increase of 240 million bushels from last month. This was based on an increase in corn planted acres by 1.5 million acres to 91.5 million acres. US yield was held at 181 bushels per acre. A surprise came when the USDA actually decreased new crop ending stocks to 2.097 billion bushels which was down from their June estimate and significantly lower than pre report estimates.
The USDA soybean estimate was down from last month by 15 million bushels set at 4.435 billion bushels. This was based on 52 bushel per acre trendline yield. Soybean new crop ending stocks were also reduced to 435 million bushels. US farmers planted 86.1 million acres of soybeans this year. This planted acreage number surely might change in the months ahead. USDA lowered the Argentinian soybean crop to 49.5 MMT, while maintaining the Brazilian crop at 153 MMT. USDA increased all of their wheat production to 2.008 billion bushels, which is the highest in the last eight years. Winter wheat production is up 7% from 2023.
On July 19th, corn, soybeans and wheat futures were lower than the last Market Trends report. September 2024 corn futures were at $3.90 a bushel. The August 2024 soybean futures stood at $10.97 The September 2024 wheat futures closed at $5.42 a bushel. The Minneapolis September 2024 wheat futures closed at $6.09 a bushel with the July 2025 contract closing at $6.03 a bushel.
The nearby oil futures as of July 19th closed at $80.13/barrel down vs the nearby futures recorded in the last Market Trends report of $81.54/barrel. The average price for US ethanol in the US was $2.20, below the $2.29 a US gallon recorded in the last Market Trends Report.
The Canadian dollar noon rate on July 19th, 2024, was .7285 US, down vs the .7306 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 4.75%.
Ontario
In Ontario, the ugly weather continued with heavy rains inundating the province in early July. This not only caused a lot of problems for the Ontario wheat harvest but was very damaging to corn and soybeans. Some areas of the province in the deep southwest of Ontario saw re-planting at least three times. Unfortunately, with the heavy rains the damage persists. One could only hope that the rest of the summer is kind for the crop that is made it through.
Wheat harvests itself has been staggered across the province based on the amount of rain in each area. It started early in Essex and Chatham Kent just after Canada day. As of July 19th, that continues in the central part of Ontario. Yields have been good but not necessarily record in many locales. The wet weather has certainly put a challenge into the quality of this crop moving ahead. Ontario wheat prices have slumped down to the $6.40 a bushel level.
The Canadian dollar continues to add stimulus to Ontario cash grain priceses. Other people might describe it as a floor. Old crop basis levels for corn have actually increased since the last Market Trends report possibly reflecting dwindling amounts in Ontario bins. At the same time the new crop basis for corn has decreased over the last three weeks. The Ontario soybean basis has actually gotten weaker over the last few weeks. This is a reflection of an eroding soybean futures price degradation.
Old crop corn basis levels are $0.70 to $1.05 over the September 2024 corn futures on July 19th across the province. The new crop corn basis varied from $.82 to $1.05 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.94 cents to $3.30 over the August 2024 futures. New crop soybeans basis levels range from $2.64-$2.95 over the November 2024 futures. Ontario SRW wheat prices are in the $6.42 range. On July 19th the US replacement price for corn was $5.22/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
There’s no question that the grain trading algorithms are dialing in a very big crop that has depressed prices and might depress them even further. Some people might ask how this happens especially when much of this crop is underwater in certain areas like the upper US Midwest. However, keep in mind the trading algorithms don’t trade with any emotions. According to all the data that they measure the good crop areas are outweighing the bad crop areas and ending stocks look very comfortable as we go into later summer.
The non-commercial players in the grain market are believing that as of July the 19th farmers for the most part in the United States are long grain. In fact, you could make the argument that many farmers are the eternal optimists and are always long grain. Needless to say, the non-commercial players are on the other side of that equation so far, they have a winning bet. Only mother nature if it decides to trim this crop significantly into August will prove them wrong.
With prices where they are at the low end one might muse that we are building demand to take prices back up. At the present time there have been increased corn exports to Mexico from the United States. There has also been an increase in ethanol usage over the last several months. This is building demand, but it probably is at the front end of more to come. In 2024 we took the escalator down to lower prices. It’s unlikely we take the elevator up very soon.
Looking ahead, some might argue that we’re grasping at straws to see bullish market factors raising prices higher. One such market factor is the La Nina weather event which is shaping up for late 2024 and 2025. This event happens when South Pacific temperature drops more than half a degree Celsius below normal. When this happens South America tends to see a lot less rainfall, higher temperatures and more heat waves which commonly causes yield reductions. Yes, that doesn’t help us now, but it is a long look ahead into the next several months.
Commodity Specific Comments
Corn
It would seem at this point in late July that “hot and dry” isn’t a thing for this growing season. For instance, hot weather at pollination always tempers corn yield but this year so far, we haven’t got that, and it is not forecasted for the rest of July. However, how about all the drowned-out areas in North American cornfields? Clearly, this will have an impact but likely on the number of harvested acres at the end of the day.
As mentioned before the funds are having a big impact on the prices as we head into August. As of July, the 9th, the managed money in corn at Chicago was at a record net short and the largest since 2019. The funds are often portrayed as villains, but they do add liquidity to the market. When things turn around, they will go long, but of course there is no way knowing when that may happen.
The December 2024 corn contract is currently priced at 13.75 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 19th percentile of the past five-year price distribution range.
Soybeans
One welcome sign for US soybeans is that as of July 19th September FOB prices are now $0.38 cheaper at the US gulf than they are in Brazil. Being cheaper usually wins especially in agricultural commodities and this should spur some export business for American soybeans.
One specter that will not help American soybeans is politics. At this juncture nobody knows who is going to win the American election but if it is the Republicans there may be another possibility of tariffs being applied against China. The Chinese will likely respond with tariffs on American soybeans further degrading any potential for further business.
The November 2024 soybean contract is currently priced 25.75 cents below the March 2025 contract which is considered a 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 27th percentile of the past five-year price distribution range.
Wheat
There have been problems in wheat fields across Europe whether that be in France or whether that be in Russia. In France there are quality issues with the wheat coming out of the field the same with Germany. At the same time there is very hot weather across Russia and Ukraine which is set to have an impact on wheat yields. However, keep in mind the wheat price is at the low end of the range and this is not helping things. It can be the frustrating thing about wheat, a crop with 9 lives, and a corresponding price that doesn’t seem to add up.
In Ontario as of the 19th of July wheat harvest continues and producers are hoping for better weather ahead. The price of wheat has dropped over the last several weeks down to the $6.40 level per bushel. There had been opportunity earlier to contract briefly over $8 but it was a brief interlude. As we go into August wheat producers will surely be deciding how many acres, they want to plant come September.
The Bottom Line (cont.)
On July 24th the Bank of Canada will once again announced the setting of their overnight interest rate target. Many people are hoping that this rate will continue to go down after being held up last month. Needless to say, it is always difficult to know if this might happen but if it does it will be negative for the value of the Canadian dollar. This low Canadian dollar continues to redeem Ontario cash grain prices which would be much lower under a higher dollar scenario.
As we look ahead there still is a weather dynamic which will weigh in on the later part of pollination as well as the soybean pod equation for August. Keep in mind, usually for corn it’s all about dry weather at pollination and for soybeans it’s rain in August. It looks like the weather is going to be fine for corn pollination, but we do not know yet for August rains. As it is, it looks like “big supply” is still winning. It might take a Black Swan to turn it around at this late point.
Managed money might be surely part of that turn around but then again it might take things lower. At the present time the cash price of corn is about a dollar below what USDA estimated cost of production. The price of corn has really been beat down and it’s hard to believe that the funds want to go even shorter. This is at a time where 325 million bushels is surplus in the pipeline. That seems overdone, but of course it is what it is.
The challenge for the Ontario grain farmer is to manage all of these marketing factors. The Ontario cash grain market will always remain its own oyster as it’s difficult to know exact provincial supply and demand realities at any given moment. Basis gives us clues but price transparency in eastern Canada is not perfect. As we move ahead summer weather will help dictate some of this. Keep in mind standing orders for grain are always helpful. There will be many marketing opportunities ahead.
