Market Trends Report – March & April 2023
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US and World
Mid-March is a time of re calibrating and planning for many North American corn belt farmers. There is still snow on the ground in many places and cold weather is having its impact hanging on more than we want. However, it’s also a time when corn planters are rolling in the more southern regions giving us a taste for what is to become widespread over the next eight weeks. At the same time all of the macroeconomic and geopolitical forces continue to buffet the grain market. There is also that big agricultural economic impact from the southern hemisphere, whose crops are being harvested now. What will the year bring looking forward? The USDA weighed in with their latest WASDE report March 8th.
The March USDA report is usually a minor comment on what’s happening sandwiched between the bigger numbers of January and the Prospective Plantings report, which will come at the end of this month. On March the 8th the USDA lowered corn export demand by 75 million bushels and consequently increased ending stocks for corn by the same amount. There was nothing other significant in the corn complex coming out of the March 8 report. Corn ending stocks now have been adjusted to 1.342 billion bushels which if you are measuring is the second lowest ending stocks for corn over the last nine years.
On the soybean side of the ledger the USDA decreased old crop ending stocks to 210 million bushels, which was a decrease of 15 million bushels from last month’s report. On the global front the Brazilian soybean crop production this year was left unchanged at 153 million metric tonnes, which was a bit of a surprise as private analysts have put it a little bit lower. However, the USDA did decrease Argentinian soybean production by 8 million metric tonnes to 33 million metric tonnes. The US and Brazilian soybean export number was raised partly to reflect the lower production coming out of Argentina. US domestic wheat ending stocks were left unchanged at 568 million bushels.
On March 10th, corn, soybeans and wheat futures were lower than the last Market Trends report. May 2023 corn futures were at $6.17 a bushel. The December 2023 corn futures contracts sits at $5.57. The May 2023 soybean futures were at $15.07 a bushel. The November 2023 soybean futures stood at $13.57. The May 2023 Chicago wheat futures closed at $6.79 a bushel. The Minneapolis March 23 wheat futures closed at $8.30 a bushel with the Sept 2023 contract closing at $8.22 a bushel.
The nearby oil futures as of March 10th closed at $76.68/barrel down from the nearby futures recorded in the last Market Trends report of $79.72/barrel.
The Canadian dollar noon rate on March 10th, 2023, was .7229 US, down versus the .7484 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate increased to 4.5%.
In Ontario old man winter continues to hang on after a fairly benign January and February. A majority of Ontario wheat now has snow cover at a time of the year when this is not always apparent. The weather forecast the rest of March is for a continuation of cold weather, which may impact the start of warm weather month activities. In fact, the way it is shaping up is we might transition right into summer. As it is, the 1.3 million acres of Ontario wheat looks to have survived what winter we did have.
The Canadian dollar has retreated this past month which has continued to keep a stimulus under Ontario cash grain prices, at a time where futures prices have decreased significantly. With the dollar at .7229 as of March 10th, it’s hard to imagine going down further. However, anything below 75 cents US can be classified as a very low Canadian dollar and while this has detrimental effects on the price of farm inputs as well as fixed farm machinery assets, it almost always has a positive effect on Ontario cash grain prices.
There is lots of old crop corn in the countryside, which Ontario buyers have been slow to take up at this time of the year. Despite that, basis levels for old crop and new crop corn are very similar to what they were a month ago. This is despite significantly lower futures values and a significantly lower Canadian dollar. Both old crop and new crop soybean basis levels in Ontario have increased over the last months despite lower soybean futures prices. This is a reflection of the direct relationship between a lower Canadian dollar value an Ontario cash soybean prices. The balance between the two is real from a marketing perspective and always must be watched.
Old crop corn basis levels are $1.30 to $1.42 over the May 2023 corn futures on March 10th across the province. The new crop corn basis varied from $1.35 to $1.42 over the December 2023 corn futures. The old crop basis levels for soybeans range from $5.10 cents to $5.26 over the May 2023 futures. New crop soybeans basis levels range from $4.30-$4.51 over the November 2023 futures. Ontario SRW wheat prices are in the $8.15 range. On March 10th the US replacement price for corn was $8.68/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Grain futures prices have taken a step down out of trading ranges that we have seen over the last several months. We’ve seen corn prices go down $0.60 a bushel, soybean prices go down $0.30 a bushel and wheat prices go down over a dollar a bushel over the last few weeks. As we look into the weeks and months to come it will be important to determine whether this is a long-term trend or only a momentary dip on the road back to the higher prices that we have become accustomed to.
Wheat prices will continue to be a wild card looking ahead, but it’s pretty clear how low is low? There is the deadline for a grain agreement on March 18th between Turkey, Russia and the Ukraine. However, there is really no solution to the war in that part of the world, only tough realities. As we move ahead, we can all hope for peace but in lieu of that we can only expect continued fracturing in Black Sea agricultural production and exports.
This will surely manifest itself in volatile futures prices looking ahead. What we have seen is Brazil filling the production vacuum for the world. Argentinian grain production is cut in half because of drought, but grain market shrugged that off largely because of the big production coming out of Brazil. This may mean that the new lower prices become more of a normal situation, especially if we have a good growing season this coming year in North America.
Much of this will depend on spring and summer weather looking ahead. As every farmer knows it is always difficult to tell what type of weather we will have. However, climate models agree that it looks like we’re moving from La Nina period of the last few years into a El Nino pattern. This has to do with changing ocean temperatures but always has an effect on crop production in North and South America. As we move into a El Nino pattern this usually translates into good crop growing conditions in North America. We are expecting to reach the threshold of the transition in the spring and summer of 2023.
Commodity Specific Comments
Corn like the other agricultural commodities has been down sharply over the last month and many people might feel like heading for the hills. However, remember that in the southern hemisphere the Safrinha crop is being planted and there is a delay. Some parts of Brazil are seeing a wet soybean harvest and there may be some switching from corn into wheat or Milo.
Corn prices are still at good levels historically despite the higher cost of growing it. For instance, at the present time, you could make an argument that corn is going to be favoured versus soybeans this spring in US fields. It’s hard to know, but do expect higher corn acreages in the US vs what you have become accustomed to, and this surely has a potential to add to the corn supply in 2023.
The May 2023 corn futures contract is currently $0.18 greater than the July 2023 contract, which is a bullish indication of old crop corn demand. The December contract is currently priced 8 and half cents below the March 2024 contract, which is considered a bearish indication of new crop demand. Seasonally, corn prices tend to peak in early June and bottom out in early October. The new crop futures contract is currently in the 53rd percentile of the past five-year price distribution range.
In Brazil another record crop of soybeans is coming off with 60% of the crop expected to be harvested by March 18th. Some private forecasters have actually said it slightly lower than that, but at these numbers who is counting. Clearly, this Brazilian crop is weighing on the soybean market and affecting all the grain price fundamentals around the world.
We have been trading in a range that continues. For instance, when we reach up to the $15.50 level it seems difficult to get through that. However, when the price dips down to $14.80 all the selling seems to dry up. The Argentinian drought was what it was, but much of the shortfall is being taken up by Brazil. We need to watch those futures price levels to see if we break out of that trading range either up or down.
The May 2023 soybean futures contract is currently 13 cents above the July 2023 soybean futures contract, which is an indication of bullish old crop demand. The November 2023 soybean contractors is currently priced 4.25 cents above the March 2024 soybean contract which is a bullish indication of commercial demand. Seasonally, soybean prices tend to peak in early July and bottom in early October. The new crop futures contract is currently in the 71st percentile of the past five-year price distribution range.
Wheat futures prices are pretty terrible compared to the last year. For instance, Kansas City wheat, Minneapolis wheat, and Chicago wheat have reached new lows. French wheat has reached new lows and who really knows what’s going on with Russian wheat? The market is watching closely for an announcement on March 18th of a renewal of the agreement between Turkey, Ukraine and Russia on whether they’ll be a continuance of grain to safely leave Ukraine. If there is no agreement it puts it risks, the three million metric tonnes of wheat that is leaving Ukraine each week.
In Ontario wheat prices are approximately $8.16 a bushel, old crop and new crop. This is significantly less than what we got last year, and it surely will impact how wheat is looked at for the rest of 2023. However, it’s too early to go there especially with the fickle nature of wheat itself. Wheat is the only crop that we exposed to four different seasons of the year, and it can also be lost on the grading table. So as wheat producers, we have to hope for good things come this spring.
The Bottom Line (cont.)
The Canadian dollar has lost over three cents against the US dollar since February the 14th. You could argue that this is a precipitous drop at a price level that is also very low. Keep in mind that the Canadian dollar is a thinly traded currency on world markets, but also moves in an inverse fashion to the value of the US dollar. This has happened in an interest rate environment which has been increasing lately despite the Bank of Canada keeping interest rates status quo in their last announcement.
The recent drop in the Canadian dollar has been a laboratory example of how changes in Canadian basis levels through foreign exchange can sometimes be opposite to what grain futures markets are doing. For instance, we have seen this precipitous drop in the dollar at a time when grain futures prices have been moving quickly lower over the last few weeks. This has mitigated much of the price drop in Canadian dollar terms. At the same time, if grain futures prices decide to rally in the next week or two, it might give tremendous opportunity to price Ontario grain with the loonie being at .7229 US. The question is what is low for a low Canadian dollar? We are still not near record low territory.
As we look ahead, amid the hypersonic missiles striking the Ukraine the next significant market moving event historically has been the March 31st prospective plantings USDA report. Typically, in the past we have seen some violent movement with grain prices on this day because of surprises in acreage projections from USDA. This has been mitigated the last several years, but there always is one or two surprises on these important market days. Does the American farmer grow far more corn than last year versus soybeans? Or do they split the difference like they did last year based on higher fertilizer prices? Grain fundamentals still matter and the propensity for the American farmer to grow record crops still must be respected.
The days ahead in Ontario will surely warm up, something that we all look forward to. This will mean even more tangible changes on the farm as planters get pulled out of the implement sheds and production plans become even more focused. It will also represent a time where our grain marketing plans need to be more focused and possibly re-calibrated depending on the marketing factors that swirl within the grain complex. Standing market orders resting at your local elevator or regional processor are one way of mitigating those risks. There will be many grain marketing opportunities ahead. Risk management never gets old. Daily market intelligence will remain key.