Market Trends Report – June & July 2022
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US and the World
It is that time of year when planting is coming to an end and plants start to grow in the June heat. As of June 6th, corn planting was 94% completed in the United States up 8% from the previous week. Soybeans were 78% planted as of June 6th up 17 percentage points from the previous week. In a year where the market wants more of everything, it’s been a relatively good start. However, there are certain areas like the North Central plains that are behind schedule has as there are in parts of Ontario. At the end of the month, we will find out the USDA’s latest estimate on crop acres. However, on June 10th the USDA weighed in with their latest World Agricultural Supply and Demand Estimates. (WASDE)
On June 10th the USDA lowered their corn export number by 50 million bushels which increased old crop ending stocks by 45 million bushels to 1.485 billion bushels. At the same time the 2022/23 new crop corn crop planted acres remained at 89.5 million acres with 177 bushels per acre average. This maintained production at 14.46 billion bushels the same total as May. Ethanol usage for the 2022/23 corn crop is still forecast at 5.375 billion bushels, which is the same as it was in May. The USDA also held serve with Brazil’s corn production keeping it at 116 million metric tons and Argentina’s production at 53 million metric tons.
The USDA maintained the 2022-2023 soybean production at 4.640 billion bushels based on a record high 91 million planted acres still projected at 51.5 bushels per acre. However, there was a reduction in old crop soybean ending stocks down to 280 million bushels Based on an increase in old crop exports of 30 million bushels. This 280-million-bushel new crop ending stock figure is the lowest in six years. Clearly, there were not too many changes made in these numbers with USDA setting the table for more fireworks at the end of the month. The USDA also included a slight increase in domestic wheat production.
The world wheat situation continues to be in flux based on the problems in Ukraine. Over the last several weeks there has been overtures in the media about a grain corridor being opened up to Ukraine by Russia. However, there are many problems with this especially in a war zone. The wheat market has been dancing through this since February and USDA wheat numbers reflect that.
On June 11th, corn and wheat futures were lower than the last Market Trends report. Soybean futures were higher. July 2022 corn futures were at $7.73 a bushel. The December 2022 corn futures was $7.20. The August 2022 soybean futures were at $16.62 a bushel. The November 2022 soybean futures were at $15.68. The July 2022 Chicago wheat futures closed at $10.70 a bushel. The Minneapolis July 2022 wheat futures closed at $12.32 a bushel with the September 2022 contract closing at $12.30 a bushel.
The nearby oil futures as of June 10th closed at $120.67/barrel up from the nearby futures recorded in the last Market Trends report of $110.49/barrel. The average price for US ethanol on June 10th in the US was $2.85 a US gallon, up from the $2.74 last month.
The Canadian dollar noon rate on June 10th was .7827 US, lower than the .7720 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate increased to 1.5%.
In Ontario crops continue to be planted and of course many crops are away to the races. There has been a wide variability in rainfall across the province. Generally speaking, spring rains have been welcoming to help with crop development. However, this has not been the case where too much rain has been received sometimes in downpours of three inches or more. In these cases, soybean planting has been delayed and replants may be taking place in many fields in southwestern Ontario.
The 600,000 acres of Ontario wheat continues to develop toward an early July harvest. Ontario new crop cash prices have fallen about $2 a bushel over the last month which is much more reflective of the geopolitical nature of wheat futures prices than anything else. $13 a bushel for wheat is still a record price for many Ontario farmers.
Ontario basis levels for corn and wheat has decreased slightly over the last month based on lower grain futures prices and higher Canadian dollar. Soybean basis increased slightly. However, Ontario cash prices for grain are still at very healthy levels. Basis levels in the United States reflect the bullish nature of the grain market and this is spilling into Ontario and Quebec. Of course, looking forward, nobody really knows the future of the Ontario crop, which will ultimately give clues to see where our Ontario basis for grains ends up. With the Bank of Canada raising interest rates this is usually always bullish for the Canadian dollar.
Old crop corn basis levels are $1.45 to $1.90 over the July 2022 corn futures on June 11th across the province. The new crop corn basis varied from $1.30 to $1.80 over the December 2022 corn futures. The old crop basis levels for soybeans range from $4.90 cents to $5.42 over the July 2022 futures. New crop soybeans basis levels range from $3.60-3.90 over the November 2022 futures. Ontario SRW wheat prices are in the $12.83 range with new crop for this year currently fluttering near $13.00 across the province. On June 11 the US replacement price for corn was $10.07 /bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
We continue to be in a massive global demand market where almost everything is in short supply. This is not only true of agricultural commodities, but also everything else. There is a myriad of reasons for this with the war being one of them, post Covid being another and so much more. As we move ahead, we need good crop growing weather to satisfy this market demand.
Will we get it? Nobody really knows the answer to that question as heat is building in the United States Midwest now. Hot and dry can be a good thing especially at this time of year for growing and emerging crops, but if it persists it might turn into something else. With relatively low ending stocks of 1.4 billion bushels of corn and 280 million bushels of soybeans, our world does not have much margin of error in 2022. We need Mother Nature to play nice.
The June WASDE report continued to shed light on what is happening even though actual planted acres and quarterly stocks at the end of the month will be much more important to decipher. In the June report USDA increased Ukrainian corn production to 25 million metric tons but kept their exports unchanged as that is such a fluid situation.
Is difficult to know what grain futures contracts will do in such a bullish market situation. In fact, they should go up even more, but will they? Of course, nobody can answer that question but keep in mind the bullish nature and the unusual times we are in. Inflation is at 40-year highs in the United States. Gasoline prices are leading the way and it’s very difficult to know how this will all settle out. Needless to say, these consumer markets are having a big effect on agricultural commodity prices.
Commodity Specific Comments
Crop weather coming up will surely affect corn in the field at this stage. Heat is moving into the American Midwest in mid-June, and this is likely to start off as very beneficial. However, if it lasts into July traders will surely become nervous. The market needs all the corn it can get and 1.4 billion bushel ending stocks will be severely impacted this year if there is a weather issue.
Keep in mind that the ethanol processors are making money and continue to represent a strong demand for corn. This is playing out both in the futures market as well as the cash market. With gasoline prices at all-time highs the incentive to blend will likely continue in 2022 and 23. This will only have the effect of increasing demand for corn.
The December 2022 corn futures contract is currently priced 4.25 cents below the March contract which indicates and more neutral position for new crop corn. The old crop spread is extremely bullish. Seasonally, we know that corn prices tend to peak in early June and bottom out in early October. The nearby July contract is currently in the 90th percentile of the past five-year price distribution range.
The June 30th USDA acreage report will surely shed some light on how many soybeans did get planted this past spring. Pair it with weather issues in several areas of the United States and this might mean more soybeans than we expected. That would be saying something because we were looking at record acreage figures. As it is, over the last few weeks soybeans have been the leader of the agricultural commodity complex.
It is no secret that the hot vegetable oil market continues to boost the soybean oil market and soybean prices. Every day, there are news items about the price of oil and the price of gasoline. As it is the price of oil is affecting these vegetable markets which continues to effect soybeans. Looking ahead, it is almost hard to envision in 2022 when this market will cool off. Most countries don’t have any reserves and this hand to mouth characteristic impacting soybean demand is likely to continue.
The November 2022 soybean contract is currently priced 2 cents below the January 2023 contract which is considered a neutral position. However, the old crop spread of July/August is extremely bullish and November March is also very bullish. Seasonally we know that soybeans tend to peak in early July and bottom in early October. The nearby July contract is currently in the 96th percentile of the past five-year price distribution range.
Wheat supplies are tight largely because of the Ukraine situation, but also because of declining wheat ratings around the world. In places like France, Germany and India the crop has deteriorated. India has also banned the export of wheat and sugar, an indication of the tight and nervous supply situation around the world. The trial balloons being floated out of Russia regarding a shipping corridor for Ukrainian grain is also impacting the daily price trade in wheat.
All of this is impacting the Ontario wheat marketplace with frenetic price changes over the last month. It is also likely to continue especially when Ontario has a short crop of wheat. For instance, $15 week was available last month, and $13 wheat is available off the combine today. That price is still $5 higher than last year and shows you the significance of the change in this market. If anybody knows what’s happens next, they need to stand up and say so because this market has been extremely volatile and surprising.
The Bottom Line (cont.)
The Canadian dollar should be a star in this world where commodity demand is on steroids. However, it lost almost 1% of its value on June 10th finishing at .7827 US. Previous to that it actually shown signs of clearing the 80 cent US level on June 8th. Keep in mind that the flight to a safe haven is still very real in this world where a major war is going on in Europe. The American dollar is still king and that is one reason why the Canadian dollar went down in the week ending June 10th. The Bank of Canada has also been raising interest rates which should be bullish for the Canadian dollar. However, we have not seen it manifested in the Canadian loonie hitting $0.80 and putting a trajectory toward 90 under this white-hot situation.
As it is the low Canadian dollar, and the very high corn wheat and soybean futures prices are providing big opportunity for Ontario cash grain prices. With these high prices comes big volatility and Ontario farmers should not expect anything less as we go throughout the months of 2022 and go into 2023. There are still many shoes to drop in the Ukraine Russia situation along with the inflationary spiral we find ourselves in. The world needs a lot of grain this year but at this stage we are still not sure whether it’s on the way. Price levels and weather will help determine that.
There are many things in play outside of the current economic fracture caused by the Ukraine Russia war. China is continuing to buy agricultural commodities at a time when they’re still fighting with Covid lockdowns. At the same time African countries are lobbying worldwide to bring some sanity back to the food distribution situation. As it is, northern Africa depends mainly on Ukrainian and Russian grain. Clearly, that is at risk and the Russians are implying any grain corridor out of the Black Sea will depend on an easing of sanctions against Russia. All of these geopolitical factors are weighing on the fundamentals of the grain market. It is very likely this becomes more complex as 2022 grows older.
The challenge for Ontario grain farmers is to keep it all together. There are so many factors to consider. Keep in mind the next USDA report on June 30th is one of the major ones that will reset US crop acres and give us a picture of where the quarterly stocks are. Typically, around the July 4th weekend we can reach market highs. However, we know the 2022 is a different year. Old crop soybeans over $22 and corn over $9 don’t lie. These are prices that dreams were made of only 18 months ago, but of course our world has changed. Looking ahead, daily market intelligence will remain key. There will be many marketing opportunities ahead.