Market Trends Report – November & December 2021
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US and World
Harvest time is in the past tense for many people across the North American farm belt. As of Sunday November 7th 84%, of the American corn crop had been harvested, while 87% of US soybeans were harvested. Generally speaking, harvest has been slower in the eastern corn belt reflecting some of the weather problems that we’ve seen in Ontario. The size of the crop is not disappointing as good weather this year has helped crops meet their potential. On November 9th the USDA weighed in with their latest WASDE report.
The USDA increased the 2021/22 corn crop by half a bushel per acre to 177 bushels per acre. This pegged total production at 15.062 billion bushels which is an increase of 43 million bushels from the October report. Corn ending stocks came in at 1.494 billion bushels a slight decrease from October. Ethanol usage was increased 50 million bushels to 5.25 billion bushels. Export demand was maintained at 2.5 billion bushels.
On the soybean side of the ledger, USDA decreased production by .3 bushels per acre to 51.2 bushels per acre. Soybean ending stocks were pegged at 340 million bushels, which was at the low end of trade estimates. What was once expected to be a record crop is now the third largest crop on record with lower yields in Indiana Ohio Iowa and Kansas accounting for the change in production from the October report. USDA kept Brazilian production at 144 million metric tons but cut Argentinian production by 1.5 million metric tons to 49.5 million metric tons. USDA left wheat production untouched in the United States of an estimated 1.646 billion bushels. The US share of world wheat stocks is only about 5.75% at the present time and all the major world exporters have some of the lowest stocks in 14 years.
On November 12th, corn, soybeans and wheat futures were higher than the last Market Trends report. December 2021 corn futures were at $5.77 a bushel. The January 2021 soybean futures were at $12.44 a bushel. The December 2021 Chicago wheat futures closed at $8.17 a bushel. The Minneapolis December 2021 wheat futures closed at $10.62 a bushel with the September 2022 contract closing at $9.00 a bushel.
The nearby oil futures as of November 12th closed at $80.79/barrel down from the nearby futures recorded in the last Market Trends report of $82.28/barrel. The average price for US ethanol on November 12th in the US was $3.19 a US gallon up from the $2.49 recorded in the last Market Trends report.
The Canadian dollar noon rate on November 12th was .7959 US, lower than the .8078 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
It has been both a frustrating year in Ontario as well as a very interesting year. It has been wet with October being one of the wettest months in many years. This set back soybean harvest as well as wheat planting across much of the province. It is estimated at the present time that approximately 700,000 Ontario wheat acres have been planted. However, how much of that will survive into next spring is another question. Planting conditions have been difficult, and planting continues into late November.
At the same time as 2021 has been frustrating from a too much rainfall perspective, the number of double crop soybeans that are actually being harvested is pretty astounding compared to past years. Ample moisture and heat in late summer provided the window for maturity and yields in the 30- and 40-bushel range have been part of the conversation. Generally speaking, the double crop soybean situation is a better news story than the regular soybean crop, which was affected by heavy rains in some parts of the province.
In mid-November there were still quite a few soybean fields yet to be harvested, but corn harvest is in full swing and in fact over in some parts of the province. Corn yields are high, in fact, higher than last year and although this has not weighed on basis levels as of yet, it may going into winter. The end of the Ontario corn story has not been written yet with crops still in the field and that is important as we look ahead. We still need good weather to get this crop in the bin.
Old crop corn basis levels are $1.15 to $1.60 over the December 2021 corn futures on November 12th across the province. The new crop corn basis varied from $.90 to $1.20 over the December 2022 corn futures. The old crop basis levels for soybeans range from $2.83 cents to $2.94 over the January 2022 futures. New crop soybeans basis levels range from $2.40-$2.73. Ontario SRW wheat prices are in the $9.24 range with new crop for next year currently fluttering near $9.69 across the province. On October 15th the US replacement price for corn was $7.69 /bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
The USDA confirmed that we’ve got some big crops this year and we’ve got some good prices too. It cannot be lost on us that even with big crops good prices are possible and this is mainly a reality because of the demand for agricultural commodities around the world. Wheat supplies are down, and prices are up. Corn and soybeans seemed to be in good supply, but we started from a very tight scenario. As we move ahead, we’re getting into that territory on the calendar where we start to refocus on new crop. However, with much of that old crop still in the field, we shouldn’t get ahead of ourselves.
In many ways we are harvesting the results of good fortune in a very tough Covid dominated world. 18 months ago, we were trying to figure out how COVID would impact the agricultural economy. While we were all hoping it would go away here in 2021, we’re still feeling the effects of Covid related supply constraints on our agricultural supply chain. Whether it is shipping, trucking, container availability or a whole host of other things it is impacting the production of our grain. We’ve had two years of good grain production and as we look ahead toward 2022 farm input price inflation may start to impact some of these decisions on next year’s crops. The hope is that dealing with COVID gets easier and we get back to some type of normalcy where everything works.
At the same time there are geopolitical concerns that will continue to possibly impact the movement of grain. Where we once thought of China versus Taiwan, we now must think of Russia versus Ukraine especially with the recent buildup in troops along their borders. There would be no shortage of black Swans in either of these scenarios.
Aside from that, corn wheat and soybeans are in price territory where profits can be made. Although in each market you can always make a bearish argument, each commodity has its bullish scenarios. For instance, soybean meal has been helping maintain soybean prices as it has risen $50 a ton in the last month. Corn futures spreads are growing more bullish and U.S. National corn basis is tightening even at a time of record yields. Wheat supplies have tightened considerably especially after last year’s drought and cash wheat prices are higher than they have been in years
Commodity Specific Comments
Corn has so much going on. Last year we had much cheaper wheat substituting for corn and feed rations, while this year both corn and wheat are expensive. At the present time we have a record corn crop with 1.493 billion bushel carry out, but we still have cash prices near $6 a bushel in parts of the United States. We came into the year tight and end users are clamoring for supply while some farmers have locked the bin door.
Ethanol grind is going incredibly well with big demand for ethanol. In fact, ethanol grind is at full capacity, and it will likely continue this way as long as supply constraints on the transportation of ethanol out does not become too limited. Energy markets are strong, gas prices are high, and this should bode well for ethanol demand this winter.
The December 2021 corn futures contract is currently priced 8.75 cents below the March 2022 corn futures contract which is a bearish indication for demand. Seasonally, corn prices tend to peak in June and bottom out in early October. The nearby December corn contract is currently in the 57th percentile of the past five-year price distribution range.
USDA certainly surprised some market observers by reducing the soybean crop down to 51.2 bushels per acre. Soybean meal demand has been strong and that has been helping soybean prices. Still, the US soybean crop is very big with carryout increasing 20 million bushels over last month to 340 million bushels.
At the same time the Brazil soybean crop has been planted very quickly with much of it in the ground a bit earlier than normal. This may have the effect of putting Brazilian soybeans on the export market sooner than one might expect in fact even by the end of this year. That’s not the logistics and the math that we like to see here in North America, but as of right now it’s still a theory. China has been a buyer of US beans, but not as much as last year.
January soybean futures contracts currently priced 12 cents below the March 2022 contract which is a bearish indication of demand for soybeans. Seasonally soybeans tend to peak in early July and bottom out in early October. The January soybean futures contract is currently in the 47th percentile of the past five-year price distribution range.
Wheat futures have been strong, and they’ve been strong for a lot of reasons mainly supplies worldwide are lower and prospects aren’t as good as they once were. In the eastern corn belt of the United States not as much soft red winter wheat has been planted as was earlier thought possible. This has increased wheat futures prices even more and as we look out beyond our own farms it would seem that the wheat bulls are raging. It’s something that we don’t see too often, but we got here with their eyes wide open especially watching the drought last summer in the northern plains in Western Canada.
In Ontario it has been difficult to get wheat planted and the wheat that’s in the ground, much of it is suspect. The wet October made for this and there are some producers in Ontario hoping for a benign late November to get wheat acres in the ground. We can hope, but we know that it doesn’t always happen. With 700,000 Ontario wheat acres planted, it will mean we’ll have slightly less than that come spring. It’s an unfortunate circumstance to have such tough planting issues especially when wheat prices are in the $9.69 range.
The Bottom Line (cont.)
The Canadian dollar remains an important component of the Ontario cash grain price scenario. Anytime that you have the Canadian dollar hovering around the 80 cent US level you are likely to have good prices in Ontario, especially so when grain futures prices are elevated as they are now. The loonie has been fluctuating in the 79 and 80 cent level for the last month and that will likely continue unless we see an interest rate rise. Both the US Federal Reserve and the Bank of Canada have been musing over the last several weeks about that scenario happening as the Covid stimulus is drawn back.
There also needs to be a focus on South American weather in the weeks ahead. For most of Argentina and Brazil the weather has been good except for the far southern regions of Brazil which have been too dry. In the case of Argentina corn planting is at 29% which is behind the average. With an expected strengthening in the la Nina weather phenomenon, it could open a scenario in South America where crops get side swiped.
The great voracious appetite for agricultural commodities which in China continues to mystify. For instance, soybean sales to the United States are 33% below where they were a year ago. For obvious reasons this is not optimum, especially with Brazil on the way to 144 million metric tons soybean crop. At the same time China has not been buying any US corn at least since last spring and there have been rumors about China buying Ukrainian corn. What we do know is that there is something going on in China regarding all of this. It’s likely China holding its cards close to its vest. In order to maintain these higher prices over a period of time Chinese demand will remain a very important component in getting there.
The USDA will issue its “final” crop report on January 12th, 2022. Until that time comes typically the market is quiet regarding the US fundamentals of grain. However, on January 12th, if history is any guide, you could have explosive price movement. This is an aside to all the geopolitical and foreign influence on the price of grain moving forward over the next six weeks. The challenge for Ontario grain farmers is to measure all these market factors both for old crop and new crop as we look ahead. 2021 has certainly been a challenge in so many ways. There will be many profitable marketing opportunities ahead. Daily market intelligence will remain key.