Market Trends Report – October & November 2023
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US and the World
It is that time of year and combines continue to roll across the great American corn belt. As of October, the 8th, 43% of American soybeans had been harvested and 34% of US corn has been harvested. Dry weather and much of the American corn belt has aided harvest progress over the last few weeks. On October the 12th the USDA came out with their latest WASDE report with many traders expecting a reduction in both crop size and stocks levels.
The USDA lowered the corn yield .8 bushels per acre down to 173 bushels per acre putting total corn production at 15.064 billion bushels. This was a 70-million-bushel reduction from a month ago with harvested acreage kept the same at 87.1 million acres. Corn new crop ending stocks were lowered 110 million bushels to 2.111 billion bushels. USDA also dropped old crop ending stocks by 91 million bushels, which of course changed the new crop beginning stocks to 1.361 billion bushels. USDA kept Brazilian corn production at 137 million metric tonnes and Argentinian production at 34 million metric tonnes respectively.
Soybean production was lowered in the United States by .5 bushels per acre versus last month to 49.6 bushels per acre. This would total US soybean production at 4.100 billion bushels. New crop ending stocks were retained at 220 million bushels. USDA also trimmed new crop global ending stocks by 3.63 million metric tonnes to 115.62 million metric tonnes which is slightly below the range of pre report expectations. Looking out into the future the USDA early estimate is for Argentina to come in with 48 million metric tonnes of soybeans and Brazil at 163 million metric tonnes respectively. USDA increased American wheat production to 1.812 billion bushels, an increase from the 1.734 billion bushels predicted in September.
On October 13th, corn and wheat were higher and soybeans futures were lower than the last Market Trends report. December 2023 corn futures were at $4.93 a bushel. The November 2023 soybean futures stood at $12.80. The December 2023 Chicago wheat futures closed at $6.36 a bushel. The Minneapolis September 23 wheat futures closed at $7.22 a bushel with the Sept 2024 contract closing at $7.78 a bushel.
The nearby oil futures as of October 13th closed at $87.69/barrel down from the nearby futures recorded in the last Market Trends report of $90.77/barrel. The average price for US ethanol in the US was $2.46 a US gallon, up from the $2.51 last month.
The Canadian dollar noon rate on October 13th, 2023, was .7322 US, down versus the .7398 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
In Ontario fall harvest is at full bore, albeit has been interrupted several times from rain showers across different regions of the province. The southwest of Ontario is fairly even and dry as of October the 13th, but wet weather was expected to set in. Other areas of the province such as in the lea of Lake Huron as well as eastern Ontario have been wetter causing harvest delays. Ontario corn has just begun to be taking off and that will certainly be ramping up toward the end of October.
Every year there is a fairly aggressive transition between old crop and new crop prices as harvest time approaches. This year was no different where we saw a drop of about a dollar in soybeans Ontario basis end approximately about $0.30 on corn as of October the 13th. This is not too surprising based on the crop that we have in the field and the abundant amounts that are available across the border. As per usual Ontario will need to utilize this grain not only domestically but by an export market which is always at the mercy of international prices on the high seas.
Ontario corn harvest should be starting up in earnest within the next couple of weeks and it should be a very good one with some private forecasters predicting a record crop. As always writing about the crop and actually taking it off are two different things in Ontario especially with fickle fall weather. As of October 13th, most of Ontario has still avoided a killing frost which should help Ontario corn reach quality.
Old crop corn basis levels are $0.85 to $1.10 over the December 2023 corn futures on October 13th across the province. The new crop corn basis varied from $.80 to $1.00 over the December 2024 corn futures. The old crop basis levels for soybeans range from $3.30 cents to $3.71 over the November 2023 futures. New crop soybeans basis levels range from $3.20-$3.39 over the November 2023 futures. Ontario SRW wheat prices are in the $6.69 range. On October 13th 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
We may have reached a seasonal low in grains and we may have not. The USDA lowered US corn ending stocks from 2.221 billion bushels to 2.11 billion bushels, which did give hope to the small number of market bulls in the corn market. However, keep in mind this is the biggest corn ending stocks that we have had in the last five years. For now, big supply is winning.
At the same time nearby corn futures are in a sideways pattern holding just under $5 a bushel. In some ways this is showing technical strength especially at a time of harvest. However, it all might also be reflecting the non-optimal conditions in Brazil where corn planted is going through dry conditions in the north and two wet conditions in the South. As it is, we’ve got a big crop in North America and our Brazilian friends have huge potential to make it even bigger.
China has been a big buyer of American soybeans, good to see especially with their relationship with Brazil. The Mississippi river has been plagued with chronic low levels recently which has affected basis levels in Illinois on the Mississippi. This reality has aided the transfer of soybeans to the Pacific Northwest, which will ultimately be destined for more exports overseas. With the American soybean demand rising through their biodiesel facilities in the future the specter of soybean imports to the United States could become a reality.
Predicting future demand is always unpredictable. However, keep in mind a good reading of future spreads helps us with the short-term implications of where market prices are going for all three grains. At the present time there is carry in the market for everything meaning commercial traders don’t see a rush to bid up prices. Ultimately this will change, but it will take an outside force usually which is non-commercial demand to come in to make that happen. Needless to say, there are enough risk variables within the grain complex to create some chaos to make that happen
Commodity Specific Comments
Corn
Since August we’ve been in a $4.70 to $5 trading range in corn. There is a target gap at $5.25 and with basis firming in the US we’ll see if we get there. There is also the narrative the traders are going to be trading these USDA numbers until we get into January, which means we might even trade lower or within this range. South American corn production will surely weigh in on the equation.
In Brazil their first corn crop is about 52% planted but it is not all in good condition with dry weather in the north and wet weather in the south. It is a great truth that as farmers we must think about weather markets and increasingly that means thinking about it a South American context versus the North American context. Weather information needs to be digested daily to help with our marketing intelligence.
The December corn contract is currently priced at 15.25 cents below the March 2024 contract which is a bearish indication of new crop corn demand. Seasonally, we know that corn prices tend to peak in early June and bottom out in early October. The new crop December futures contract is at the 39th percentile of the past five-year price distribution range.
Soybeans
USDA reduced the soybean yield in the October report as well as the September report. This might mean it’s entirely likely that they’ll do it again in the November report as dry weather did affect the crop. It might also signal that the seasonal low in soybeans might be in the rear-view mirror.
Keep in mind the cost of capital is higher now than we have become accustomed to over the last few years. Storing soybeans into the future is going to be more costly and producers need to measure that if they’re hoping to catch a rally in soybeans later. Ditto for the corn market. And of course, as always with soybeans the big production machine in South America has to be heard from.
The November 2023 soybean contract is currently priced 32.5 cents below the March 2024 contract which is considered bearish. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The November soybean contract is currently at the 60th percentile of the past five-year price distribution range.
Wheat
China has been purchasing US SRW wheat. China has always bought US wheat, but they are buying more of it. Keep in mind that we are at price levels at three- or four-year lows and our Chinese friends can see a bargain when it presents itself. Argentina and Australia are in drought right now which could affect wheat production.
In Ontario wheat continues to be planted as farmers race against the clock amid weather issues. Big wheat acreages in Ontario are usually a function of good planting conditions and this fall it is unlikely to be the same as the conditions we had last year. On top of that wheat prices are much lower than they have been in the past two years which will also be a disincentive to get those acres in. Needless to say, the weather in the next two weeks will largely determine how much wheat is planted in Ontario.
The Bottom Line (cont.)
The Canadian dollar at .7322 US continues to have stimulus to Ontario and Quebec grain prices. It’s always hard to say exactly where the Canadian dollar will go other than its usually in an inverse fashion to where the American dollar goes. With the current geopolitical tumult going on it would be not unusual to see capital flee to a safe haven which is always the US dollar. This will further marginalise the loonie, which is important to us as Ontario grain producers but is a thinly traded currency. As always, Ontario producers must balance between a low Canadian dollar and where futures prices may be. $6 corn and $16.25 cash soybeans are truly a reflection of how valuable foreign exchange traders value our loonie.
At a certain point there is always a little bit of inertia when it comes to grain price sentiment. For instance, is it really that difficult to be bullish grain prices at a moment like this where it has been bearish for several months and big crops are in the bin? Or is it easier because seasonally both corn and soybeans usually reach their lows at about this time of the year and history tells us we all will see price appreciation? Clearly, market traders have bought in to the bearish argument and we might be finding too much sentiment on that side of the boat at the present time. We know that with perfect markets that should never happen, but markets are not always perfect. There likely will be many marketing opportunities ahead.
Much of that may depend on the geopolitical risk which continues to be in the marketplace. Although the Middle East is not strategic for grain production or grain demand it is white hot now with regard to war. This can never be negated when it comes to grain prices. On top of that we still have the numerous problems in Ukraine and Russia, which will continually be a wild card into the next season. Canada has its own trouble on the geopolitical front. Export markets for both corn and soybeans out of Ontario will surely be affected.
As the calendar grows late in October and November starts up the cold chill of later fall will surely be felt. There is still a bit of drama left with regard to Ontario and Quebec harvest which surely could affect basis levels going forward. Ditto for the crop in the United States although it seems the challenge for Ontario grain producers is to balance all of these risks happening in the grain complex. Rebalancing our marketing risk management strategy is a continual challenge. As we move ahead, daily market intelligence will be key.
