Market Trends Report – May & June 2023
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US and the World
It is that time of year again, where planters are rolling across the great North American grain belt. As of May the 7th about half of the American corn crop was planted and 35% of the American soybeans had been planted. This percentage has been growing rapidly as good planting weather in much of the United States as well as Ontario has aided progress. It is shaping up to be a big year, or at least a year with a great start and that is something that farmers will take every time. On May 12th, the USDA weighed in with their latest World Agricultural Supply and Demand estimates. (WASDE)
In short, the USDA is predicting record corn and soybean crops in the United States this year. On the corn side of the ledger the USDA is saying 15.265 billion bushels will be produced which if realized will be bigger than the 2016 record crop. This is based on an average yield of 181.5 bushels per acre on 92 million acres. The USDA is predicting 2023-2024 ending stocks to come in at 2.222 billion bushels which will be the largest ending stocks in the last five years. On the old crop side ending stocks were raised 75 million bushels to 1.417 billion bushels. The Brazilian corn crop currently growing in the field was raised 5 MMT to 130 MMT.
American farmers are expected to produce 4.51 billion bushels of soybeans in this new crop year, based on an acreage projection of 87.5 million and yield estimates of 52 bushels per acre. The new crop ending stocks are set to increase to 335 million bushels compared to the 215 million bushels where we sit presently for old crop ending stocks. Looking way into the future into next year the USDA is predicting are Brazilian an Argentinian soybean crop to be larger than 163 MMT and 48 MMT respectively. American soft red winter wheat production is set to come in at 406 million bushels, which is up a whopping 21% from 2022.
On May 12th, corn, soybean and wheat futures were lower than the last Market Trends report. July 2023 corn futures were at $5.86 a bushel. The December 2023 corn futures contracts sits at $5.48/bu. The July 2023 soybean futures were at $5.08 a bushel. The November 2023 soybean futures stood at $13.90. The May 2023 Chicago wheat futures closed at $6.35 a bushel. The Minneapolis May 23 wheat futures closed at $8.65 a bushel with the Sept 2023 contract closing at $8.67 a bushel.
The nearby oil futures as of May 12th closed at $70.04/barrel down from the nearby futures recorded in the last Market Trends report of $77.87/barrel.
The Canadian dollar noon rate on May 12th, 2023, was .7374 US, almost the same versus as the .7386 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate was maintained at 4.5%.
Ontario
Late April had unsettled weather in Ontario delaying planting mostly into May. However, weather cleared post May the 6th and there was tremendous progress in the planting of both corn and soybeans as of May 14th across the province. This continues with warm weather projected toward the end of the month. This may result in record corn planting this coming year in Ontario.
The great planting weather last fall and benign winter has resulted in some of the best Ontario wheat optics in many years. For the most part wheat has been side dressed with nitrogen along with herbicide and fungicide application which is ongoing. It is shaping up to be a big crop especially when you consider acreage is at a record level approximately of 1.3 million acres.
It is all shaping up as a great year from a great start. However, we know how that goes. There is lots of risk ahead. Ontario basis levels are lower than they were three weeks ago partly reflecting the lower futures values but also the preponderance of old crop supplies in the province. This is all subject to change in the next 8 weeks as this big crop hits some critical crop development stages. The Canadian dollar fluttering in the 73 cent US level helps continually.
Old crop corn basis levels are $.95 to $1.22 over the July 2023 corn futures on May 12th across the province. The new crop corn basis varied from $1.05 to $1.35 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.40 cents to $4.52 over the July 2023 futures. New crop soybeans basis levels range from $2.99-$3.40 over the November 2023 futures. Ontario SRW wheat prices are in the $7.27 range. On May 12th the US replacement price for corn was $8.15/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 prices are a lot lower than they were a month ago, in fact quite a bit lower than they been the last two years. We got here with our eyes wide open. In other words, it’s not really news, but more the reality of a precipitous price drop. The big crops in the southern hemisphere had a big impact on cushioning the world’s supply of grain. With the early and successful start of this present planting season, futures prices have simply been looking for a bottom.
We might not have reached that point yet, but then again there is always something in the agricultural commodity world that can send the market the other way. For instance, we know that seasonality tells us both corn and soybeans have a spring rally with new crop prices usually peaking in June and July. For those looking for some type of price redemption, that reality is out there.
The other reality is what the USDA said on May 12th reflecting back to their biggest crop projections last February. They are projecting the largest new crop ending stocks in seven years and the largest new crop soybean ending stocks in almost four years. Clearly, the potential is there this year for big record crops and that’s something that farmers need to keep in mind as we priced grain moving ahead.
The geopolitical situation continues to boil but of course nothing like a year ago. We still have a hot war going on in Ukraine, where farmers are trying to make their agricultural economy work. We still don’t know if there will be another Black Sea grain agreement signed. This will remain a wild card for world agricultural commodity markets. We have no way of predicting where price may go especially if the war heats up even more this summer.
Commodity Specific Comments
Corn
We’re looking at a big corn crop. However, 12 out of the last 15 years December corn futures always have taken out what the December high was in the previous March. In the three years that it didn’t, one of those was the Covid year and the two others came within a nickel of that past December futures high. So, it is likely to happen again, which means looking higher up at the $5.75 level. Needless to say, maybe it will be one of those anomaly years.
Meanwhile, the Safrinha crop in Brazil continues to grow with great potential. However, it is getting hot in those growing areas and as always, we have to wonder if this potential will be cut back severely. A keen eye on South American weather within the Safrinha crop growing area needs to be added to your daily market intelligence.
The July 2023 corn futures contract is currently $0.76 above the September 2023 contract which is a bullish indication for old crop demand. However, the December corn futures contract is priced 10 1/2 cents below the March 2024 contract which is a bearish indication of new crop corn demand. Seasonally, corn prices peak in early June and bottom out in early October. The new crop futures contract has fallen to the 42nd percentile of the past five-year price distribution range.
Soybeans
The USDA came out with record soybean production, but they also increased demand for the new crop side of the market. For instance, soybean crush is expected to increase reflecting the American policy for biodiesel. This had been expected and may mean increased sales of soybean meal and oil out of the United States this year.
With the establishment of the El Nino weather pattern and dryness in Asia this is likely to affect Malaysian palm oil production, which is a major competitor for soybeans. Already, they are seeing 40% less rainfall than normal. If these issues continue, that will be very bullish for soybean prices as well as soybean oil prices looking ahead.
The July soybean contract is currently $0.72 above the August 2023 soybean contract which is a bullish indication for old crop soybean demand. However, the November 2023 soybean contract is priced 14 and a quarter cents below the March 2024 contract which is a bearish indication of commercial demand. Soybean prices tend to peak in early July and bottom out in early October. The new crop soybean futures contract is currently in the 53rd percentile of the past five-year price distribution range.
Wheat
The USDA report took ending stocks down for all wheat much more than the trade was expecting. At the same time Kansas City wheat went much higher as it had been oversold. We also found out this week that the Australian crop is 25% smaller than a year ago and so far, there is no Black Sea agreement to ship Ukrainian grain. What may also be shaping up is the El Nino weather pattern which typically means dryness for Asia. This could mean lower wheat production in Russia, China and India.
In Ontario, this news might not mean very much as wheat prices are almost in half of what they were a year ago at harvest time. On top of that the United States is producing 21% more soft red winter wheat than a year ago, further adding to a glut in that wheat class. It is not unprecedented, as Ontario producers have seen this before, but it is certainly different than the last couple of years. Sometimes the wheat market will light up in late May and early June. Big yields in Ontario will have to make the difference.
The Bottom Line (cont.)
The Canadian dollar continues to flutter around between the 72 and 74 cent US level. As always, and it cannot be emphasized enough it continues to add stimulus to Ontario grain prices. In fact, it’s getting a bit old, but it is so true. If Ontario farmers saw an energetic and dynamic loonie against the US currency in the current futures price environment, Ontario cash prices would be moribund compared to where we have been. As always, it is difficult to predict the value of the Canadian currency other than it is usually the inverse of the value of the US dollar.
It cannot be lost on Ontario grsin farmers that the current tensions between Canada and China have the potential to interrupt the flow of Canadian commodities to Asian shores. It is true that not a lot of Ontario soybeans go to China, but lots go to other countries in the Far East. The current tensions and diplomatic expulsions between Canada and China may result in some further measures by the Chinese government. Often, but not entirely the easy target are agricultural commodities. That could be of a concern for Ontario farmers as we move forward into 2023.
As planting continues in the United States and Canada, it is about weather and how that will impact crops growing in the field. Generally speaking, there is an inverse relationship in prices for old crop versus new. With the record crops predicted this inverse might be more overstated than we’ll see in subsequent years. However, that will depend on how Mother Nature cooperates and whether record crops do happen. Science and genetics have made great strides, but we still need rain at the right time. 2023 in that sense is no different than any other year.
Clearly, new crop prices aren’t exactly where many Ontario farmers would hope they would be. Keep in mind, it is never over. Often the grain market can change very quickly. There is also the spectre of non-commercial money coming back into the commodity trade, especially if there is a weather scare. You will need your standing pricing orders resting at your elevator or processor to capture some of these opportunities. The marketing year is long. Risk management never grows old. Daily market intelligence will remain key.
