US and World
It is a critical time of year for crop development and our grain markets. Mid-June is often a time where we begin to reach an inflection point in markets as crops continue to grow and need good weather to foster development. “Hot and dry” often becomes part of our daily market intelligence, impacting crops and market prices. The crop is planted now in the American Midwest and across Eastern Canada. A cold snap followed by hot and dry has impacted these growing crops over the last four weeks. As June grows old, all of this will surely be accentuated. At the end of the month USDA will publish their revised acreage estimates along with a plethora of stocks numbers. It will surely lead to a continuation of a volatile time in grain markets.
On June 10th the USDA released their latest WASDE report. The June report continues to set the table for the June 30th acreage report, keeping 2021/22 corn production at 14.99 billion bushels. USDA gave a demand boost to the corn market by lowering corn ending stocks 150 million bushels down to 1.107 billion bushels. On the new crop side of the ledger, total use is expected to be 14.765 billion bushels with feed, seed and industrial use pegged at 6.615 bbu, ethanol use at 5.2 bbu, and exports at 2.45 bbu. USDA lowered Brazilian corn production to 98.5 MMT, which was lower than expected.
On the soybean side of the ledger, old crop ending stocks were increased 15 million bushels pegging total ending stocks at 135 million bushels. There was no change in yield or production for the new crop year, 50.8 bu/acre and 87.6 million acres. USDA increased Brazil’s 2020/21 production to 137 MMT and maintained Argentina’s soybean production at 47 MMT. On the wheat side of the ledger, USDA estimated that global wheat production was on track for a new record in 2021/22 of 794.44 MMT. US winter wheat production is up 12% from last year.
On June 11th, corn futures were higher than the last Market Trends report. Soybean and wheat futures were lower. July 2021 corn futures were at $6.84 a bushel. The July 2021 soybean futures were at $15.08 a bushel. The July 2021 Chicago wheat futures closed at $6.80 a bushel. The Minneapolis July 2021 wheat futures closed at $7.79 a bushel with the September 2021 contract closing at $7.86 a bushel.
The nearby oil futures as of June 11th closed at $70.91/barrel up from the nearby futures recorded in the last Market Trends report of $65.37/barrel. The average price for US ethanol on June 11th in the US was $2.43 a US gallon down from the $2.50 recorded in the last Market Trends report.
The Canadian dollar noon rate on June 11th was .8232 US, slightly lower than the .8255 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
In Ontario, the crop is planted and growing well, but there have been some hiccups along the way. A snap of cold weather at the end of May resulted in frost inundating most areas of Ontario, with varying degrees of hurt. In Eastern Ontario, there were lots of replanted soybeans, ditto for many other areas of the province. However, the cold weather also affected corn development headed into mid-June. This was followed by much hotter weather. Moisture has become a problem in many parts of the province with hit and miss thunderstorms not providing the wide coverage, which the Ontario crop needs. As we head into late June, rain is needed.
This weather also affects the wheat, which came into head a bit early, looks good, but is suffering varying degrees from the hot and dry weather experienced in the first two weeks of June. Often times, dryness can help wheat by reducing disease, but moisture is needed. In some areas of central Ontario, the wheat is severely impacted. Needless to say, in the deep SW, wheat is starting to turn in Essex County and wheat harvested is expected to be early. Expect some combines to be rolling in the first week of July.
Basis levels have been maintained for both corn and soybeans, with the soybean basis slightly lower since the last Market Trends report. The Canadian dollar continues to flutter just under the 83 cent US level, the top end of its 20% increase over the last year. At these price levels, we even saw an unusual cash market event this past month with Brazilian soybeans being imported into Quebec, then making their way into Ontario. It’s not unusual to have corn and soybean imports, but usually it’s from the US, as expected. The magic of basis trading made this happen, as if there is an opportunity and the price is right, end users will buy. Ontario cash basis levels respond accordingly.
Old crop corn basis levels are $1.70 to $1.80 over the July 2021 corn futures on June 11th across the province. The new crop corn basis varied from $.90 to $1.40 over the December 2021 corn futures. The old crop basis levels for soybeans range from $3.37 cents to $3.55 over the July 2021 futures. New crop soybeans basis levels range from $2.59-$2.65. Ontario SRW wheat prices are in the $8.40 range on May 16th, with new crop values in the $7.75 range. On June 11th the US replacement price for corn was $9.13 /bushel. You can access all of these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
This is the time of year when traditionally, we have our highest new crop price opportunities. That may be true again, it might not be, but it’s always relevant. It’s hot and dry in much of the greater North American corn belt, but usually this time of year, that’s the way it is. The challenge of course in a year with very good new crop prices is to balance your sold positions with yield expectations in the field. Needless to say, that’s why grain futures prices are so volatile. This is the time when the crop starts to be made.
Covid 19 is still with us. Hopefully, we are on the track to put it behind us, but it shouldn’t be underestimated how it affected grain markets. A year ago, grain prices were lower. Last year in mid-June, July corn was at $3.30, July soybeans at $8.71 and July Chicago wheat at $5.02. In many ways, the sky was falling, as a once in a century pandemic took hold. However, out of Covid, there has been so much change. How about the change in demand for lumber and computer chips, needless to say, food and agricultural commodities? The world still has to eat, and we found that out again in spades. Covid 19 fomented much fracture in markets, and it continues today, albeit at a lesser extent.
Key to near term future price direction will be weather and USDA acreage reports at the end of the month. How many acres of corn and soybeans did farmers really plant this year, without the high prevent plant acres we’ve seen in past years? Will there be a shift to more corn acres, leaving the US soybean complex dangerously light on supplies as we forge into July? These changing numbers will change the 2021 grain fundamentals. We all know that crop weather over the next 8 weeks will do the same thing.
It also important to keep in mind what we do know and what we don’t know about our grain futures markets. Grain futures spreads are always important giving clues to market demand. In short, if you have inverses, where outward futures months are valued less than nearby months, that’s a reflection of commercial demand strength. If you have the opposite, it’s a reflection of commercial demand weakness. Over the last several months, old crop months have had huge inverses for corn and soybeans. However, today, new crop corn futures (Dec 2021 March 2022) are in a small carry, while soybeans (November 2021 March 2022) continue in inverse way out. Watching these futures spreads on those specific months helps gauge just where futures prices might go.
Commodity Specific Comments
In a weather market, especially this time of year, corn trading can be frenetic. In the week ending June 11th, corn was up big on the week, until it was lost on the Friday as rain had moved through the Dakotas. Meanwhile the 10–14-day weather forecast was for scorching weather. Expect more of the same, especially as we move toward June 30th and the July 4th weekend, a traditional high point for corn getting set for pollination.
The USDA pegged old crop corn stocks at 1.1 billion bushels, which is so much lower that we’ve been for several years. New crop corn ending stocks set at 1.357 billion bushels are similar. However, keep in mind that the June 30th USDA report might change that paradigm. Pushing corn acres into the 93–95-million-acre range will raise those stocks. Add a few good rains into the mix and supply concerns wane.
The December corn futures contract is currently priced 6 cents below the March 2022 contract which indicates a bearish indication. US corn is close to 8-year highs, the nearby contract in the 88th percentile of the past five-year price range. Seasonally, corn prices tend to peak about now (mid-June) and bottom in early October.
Soybeans supplies remain at pipeline levels, as long as that pipeline represents 135 million bushels of old crop stocks predicted by USDA. New crop stocks are unchanged at 155 million bushels, a far cry from those billion-bushel stocks of 3 years ago. However, how many acres will the American farmer plant this spring. On June 30th, those acres are set to increase, and this will largely impact those supplies.
87.6 million acres of US soybeans and 50.8 bushel per acre are where we are at the moment and the US cannot afford to lose a bushel. American farmers have a default tendency to plant more corn, and this may set up a scenario of ever shorter supplies. However, as we all know, weather will help to define that. Rain in August is always key to soybean yield.
The November 2021 soybean contract is currently priced 23.75 cents above the March 2022 soybean contract, which reflects a very bullish market indication. The nearby soybean contract is down from last month, but still sits in the 82nd percentile of the past five-year price range. Seasonally, soybean prices tend to peak in July and reach their low in October.
Wheat prices have been frenetic, partly because of the different weather patterns, which have affected the different classes of wheat, HRS, HRW and SRW, the latter being the predominant wheat grown in Ontario. Rain in the Dakotas and western Canada is good for HRS, but not so much for the HRW area and the areas in the East which grow SRW. Wheat production globally is on a continual rise, but despite that, cash prices are higher in the Eastern Corn Belt. When looking at the wheat market, each wheat class has its own supply and demand table, which demands its own scrutiny.
In Ontario, the wheat crop looks good, much of it sprayed with fungicide to protect against fusarium as harvest gets closer. Dry weather is certainly impacting wheat across the province and rain in mid-June would be appreciated to further grain fill. Needless to say, cash prices for wheat in the $7 and $8 range is good for Ontario farmers.
The Bottom Line (cont.)
Non-commercial demand for grain is always important to the direction of grain futures movement and this will become increasingly apparent as we move into July. Opportunities in grain futures will look “calm” compared to putting investment capital into Bitcoin or lumber or any other number of markets. Fund positions are measured at the CME, but even so, the movement of money into and out of the grain market during this time of the year can be hard to tangibly measure. Simply put, funds add liquidity, which is a good thing, but at times like this, they add violent volatility to grain prices. For farmers, having standing cash market orders ready is often one of the best ways to dealing with this volatility.
The Canadian dollar has gained 20% over the last year, which in previous years, would have meant a huge contraction in Ontario and Quebec cash prices if grain futures hadn’t moved up. However, we all know, grain futures have moved up to very high levels compared to last year and the Canadian dollar move has mitigated that. In many ways, the Canadian dollar was muted in this environment. However, its value is still very real and if the loonie decides to go back down at these inflated grain futures values, it will mean a rise in Ontario cash prices. The hard part as always is knowing what the Canadian dollar will do. The decline in the US dollar has ended for now, which might put the loonie on its heels.
Grain fundamentals are what they are as well as prices. However, we all know at this time of the year, crop weather matters. The hot and dry pattern currently apparent in the US corn belt is forecast to continue from June 18th to June 24th. These forecasts will surely always be fickle, especially to computer algorithms, but increasingly they are getting better. Use the weather resources available to you to look beyond your farm. This may help you with placing your marketing orders.
The challenge for Ontario farmers as we look ahead is to continually measure your risk environment and reset your parameters accordingly. We are headed into one of the most important times of late spring and summer for crops and market action. The June 30th USDA report represents a benchmark in our marketing year that needs to be respected. It might be all about computer algorithm trading, but history tells us price action can be both frenetic and profitable at this time of year. The road ahead is not necessarily easy, and often gets more complicated. However, there will be many grain marketing opportunities ahead. Daily market intelligence will remain key.