Market Trends Report – November & December 2022
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US and the World
We are in the homestretch toward the end of the year. Across the greater American corn belt combines have been rolling over the last month in the great race to finish harvest. As of November, the 7th 87% of the US corn crop had been harvested which is up four percentage points from last year. At the same time 94% of the American soybean crop has been harvested, which is about 8% higher than we were a year ago at this time. It has been a good year for crops in the United States even though the weather was drier than normal in many growing areas. The USDA weighed in with their latest WASDE report on November 9th.
The USDA increased both corn and soybean production in this report. On the corn side of the ledger the USDA increased production by 35 million bushels to 13.93 billion bushels. On the soybean side of the ledger production was increased 33 million bushels to 4.346 billion bushels. Although these are not at record levels, they are still very good crops. The corn yield was boosted .4 bushels per acre to 172.3 bushels per acre. USDA also increased total domestic use by 25 million bushels but held firm US exports at 2.15 billion bushels. This is a bit of a surprise as corn exports have been 54% less than a year ago. With these changes corn ending stocks are set at 1.182 billion bushels which is up 10 million bushels from a month ago.
Soybean yield was boosted in the United States up to 50.2 bushels per acre with harvested acreage unchanged at 86.6 million acres. On the demand side the USDA saw higher crush value by 10 million bushels, but left everything else the same as last month. Ending stocks for 2022 and 2023 increased to 220 million bushels, which was up 20 million bushels from last month’s estimate. On the global level the USDA raised 2022-2023 ending stocks by 1.65 million metric tons to 102.17 million metric tons. It kept the big Brazilian crop unchanged at 152 million metric tons but reduced Argentina’s crop by 1.5 million metric tons down to 49.5 million metric tons. US wheat stocks are at their lowest levels in 15 years. Wheat production was left unchanged at 91 million metric tons in Russia and 20.5 million metric tons in the Ukraine.
On Nov 12th, corn and wheat futures were lower than the last Market Trends report. Soybeans were higher. December 2022 corn futures were at $6.58 a bushel. The January 2023 soybean futures were at $14.50 a bushel. The December 2022 Chicago wheat futures closed at $8.13 a bushel. The Minneapolis December 2022 wheat futures closed at $9.50 a bushel with the Sept 2023 contract closing at $9.41 a bushel.
The nearby oil futures as of November 11th closed at $88.96/barrel up from the nearby futures recorded in the last Market Trends report of $85.61/barrel. The average price for US ethanol on November 11th in the US was $2.70 a US gallon, down from the $2.53 last month.
The Canadian dollar noon rate on November 11, 2022, was .7475 US, up versus the .7217 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate increased to 3.75%.
Ontario harvest weather has been pristine compared to past years and especially compared to last year as warm days and soft breezes have helped farmers harvest what is generally considered to be a good crop across Ontario. However, dry weather in many parts of southwestern Ontario impacted yields severely, while the story in eastern Ontario seems to be much better. In fact, storage has been a bit of an issue in eastern Ontario as big yields have challenged both farmers and merchandisers. As of November 12th, large parts of the Ontario harvest are over in most of the province.
Ontario basis levels have decreased in both corn and soybeans since the last market trends report. This could be a reflection of a lot of things but harvest pressure and big crops in parts of the province are certainly part of it. The Canadian dollar has also seen a rise going into November 11th of approximately $0.02 US since the last report in October.
The Canadian dollar sitting at .7475 US has been rising lately largely based on the decrease of the American dollar in the week leading up to November the 11th. As always it is a challenge for Ontario farmers to balance this foreign exchange risk versus what grain futures are doing and the last month in Ontario has been a laboratory for this.
Old crop corn basis levels are $1.15 to $1.50 over the December 2022 corn futures on November 12th across the province. The new crop corn basis varied from $1.20 to $1.45 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.25 cents to $4.55 over the January 2023 futures. New crop soybeans basis levels range from $3.75-$4.00 over the November 2023 futures. Ontario SRW wheat prices are in the $9.50 range. On November 12th the US replacement price for corn was $8.98 /bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
It’s been a pretty good year to price grain. That doesn’t necessarily mean the best pricing opportunities are in the rear-view mirror. However, $15/bu wheat, $19/bushel soybeans and $8.50/bushel corn off the combine were good prices. It all a vestige of war time markets and weather and it may continue into 2023. Grain will continue to be grown, managed and traded all around the world.
Managing American corn exports has been a problem compared to last year. Corn exports are down 54% from last year, the lowest in 3 years. At the present time Brazil corn prices are approximately 13% lower than comparable American prices. Part of the issue is the world is still living off a big Brazilian corn crop last year. The American window to export corn is usually from December to June, with Brazil corn coming on in July. China usually prefers Brazilian or Ukrainian corn and that will surely play out this year. At the end of the day, US corn exports should improve, but much will depend on Brazilian weather.
US soybean exports are a bit lower than last year but not like corn. There are issues, especially with the low water in the Mississippi River, which is making moving soybeans (or corn) into a slower more expensive proposition. Aside from exporting soybean crushing is doing really well and is a beacon of soybean demand. On November 11th, crushed soybeans exceeded the cost of soybeans by $3.68/bushel, which is near to the highest premiums on record for US soybeans. It a great bullish market factor for US domestic soybean demand.
The Ukraine, Russia, Turkey agreement on moving grain out of the Black Sea is set to expire Nov 19th. As it is grain is being loaded at a feverish pace in front of that expiration. At the same time Turkey is working to expand the agreement, as the war continues. Will common sense prevail? This is war and nobody knows.
Commodity Specific Comments
Corn has dropped over 40 cents in the last month reflective of this seasonal time of year when we reach harvest lows. Its anybody’s guess whether these lows are in with regard to future prices. On the cash side in Ontario, we’ve had some of the highest corn prices of the year at harvest based on basis gains vs earlier in the year.
As it is, there has been a lot of negative news dialed into this US corn crop. The Mississippi water levels are low limiting grain movement and further depressing corn exports. The crop wasn’t a disaster by any means, but it was lower than first expected in spite of the USDA raising it in the Nov 9th report. In fact, this crop might get bigger going into the January report.
The December 2022 corn futures contract is currently prices 5 3/4 cents below the March 2023 contract which is considered a neutral indication of commercial demand. Seasonally, we know, corn prices tend to peak in early June and bottom out in early October. The December contract is currently in the 68th percentile of the past 5-year price distribution range.
Increasingly dominate in the soybean market is the big crop currently growing or being planted in Brazil. USDA pegged the crop at a whopping 152 MMT and that may grow as the season moves on. With this big supply factor lurking in the background, soybeans price appreciation will surely be tempered by what might be in the future. On the other hand, “hot and dry “in Brazil could send it the other way.
China has continued to be a buyer of US soybeans. In fact, soybean prices at the Dalian exchange in China are at their highest levels in 4 months, $19.05 US on November 11th. The Zero Covid policy has continued to affect the Chinese economy, but this maybe easing in the next few months in order to help.
The January 2023 soybean contract is currently 6 3/4 cents below the March contract, which is considered neutral to bullish. Seasonally, soybean prices tend to peak in July and bottom out in early October. The nearby January soybean contract is in the 66th percentile of the past five-year price distribution range.
The US dollar and wheat futures prices tend to be highly inversely correlated together. However, as the US dollar has fallen over the last three weeks, wheat prices have fallen as well. Wheat fundamentals are partly the culprit. The Black Sea area despite the war has been a superhighway for grain movement. Essentially, if you are in a war zone, you load grain faster, and that’s what’s been happening in Ukraine and Russia. There has also been dryness in the US wheat belt as well as Argentina. However, with war time markets, you never know when that can change.
In Ontario, the wheat crop went into the ground in excellent conditions. This may push Ontario wheat acres to 1.2 million acres plus. Cash prices for wheat are inversely correlated to the value of the Canadian dollar, fluttering in the 74 cents US level giving values in the $9.50 range. New crop Ontario wheat prices for July 2023 are closer to $10/bushel.
The Bottom Line (cont.)
The Canadian dollar has gained back some of what it lost in October as the US dollar has been scaled back over the last three weeks. Also too, the Bank of Canada and the US Federal Reserve have been raising interest rates. On top of this, our federal finance minister has mused about recession in 2023. Still, a Canadian dollar fluttering in the 74-cent level is a huge stimulus to Ontario and Quebec cash grain prices. It’s such a moving target and will continue to be going into 2023.
Weather will continue to be a defining issue for crop prices with the focus being on South America. Argentina and southern Brazil are dry now, which the market is picking up. At the end of the day, just like we saw in southwestern Ontario this year, sometimes it’s about where the rain falls. At a certain point, you’d think global production fields would get back to normal, but that hasn’t been the case over the last few years. Brazil is looked upon as the world’s insatiable breadbasket now. In 2023 and beyond, its being relied upon to make up everybody else’s shortfalls.
Geopolitically, the war continues in Ukraine, and with that, we’ll see continued instability. Grain analysts are not military analysts, so prognosticating on what might happen is an end game. Clearly, it’s going to be hard for Ukraine to plant next spring, making for lower production. Remember, that’s where Brazil comes into the picture. Add in some of the mystery of Chinese grain demand and you have a potpourri of grain marketing influences. Thankfully, the American midterm elections are over, and we don’t have to think about that anymore.
Ontario farmers will need to balance all of these market factors. There will be the continued challenge to balance Canadian dollar basis changes with grain futures fluctuations. There will be a continued challenge to pay for and budget for inputs prices which are so much more than they were 2 years ago. Profitable marketing opportunities exist now and surely will in the months to come. Standing resting marketing orders are one way to capture marketing opportunities when the fluctuations get to be too much. It’s all part of our risk management. Daily market intelligence will remain key.