US and the World
It is September and soon we will hear the rumble and roll of combines harvesting soybeans. Across the greater North American corn belt there has been a plethora of different weather conditions this past growing season. Some areas of the corn belt were dry while others were wet, and others were in between. This was accentuated from smoke from Canadian wildfires in Midsummer. However, as we go into the end of September this harvest activity will increase. Despite all the weather challenges that we had this past year it looks like we’re going to have big crops in the United States and beyond this fall.
On September 12th the USDA released their latest WASDE report. The USDA estimated US corn yield to be at 173.8 bushels per acre pushing domestic production to 15.13 billion bushels. Part of this production had to do with an increase in corn planted and harvested acres by 800,000 pushing up projected harvested acres to 87.1 million acres. The corn ending stocks position was increased 19 million bushels to 2.221 billion bushels.
USDA estimated soybean yield to drop down to 50.1 bushels per acre which was the .8 bushels per acre decline from last month. This has been expected by traders with production looking now to come in at 4.15 billion bushels. Planted acreage was increased but not to the same amount as corn coming in at 83.6 million acres planted and 82.8 million acres expected to be harvested. Ending stocks for the new crop year are estimated to be 220 million bushels which is about 25 million bushels less than last month. Brazil and Argentina soybean estimates were left unchanged 163 million metric tonnes and 48 million metric tonnes respectively. USDA expect American farmers to harvest 1.734 billion bushels of wheat for this crop year, which is unchanged from last month. They will be updating their wheat situation on September 29th.
On September 16th, corn and soybean where higher and wheat futures were lower than the last Market Trends report. December 2023 corn futures were at $4.76 a bushel. The December 2023 corn futures contracts sits at $4.78/bu. The November 2023 soybean futures stood at $13.40. The December 2023 Chicago wheat futures closed at $6.04 a bushel. The Minneapolis September 23 wheat futures closed at $7.89 a bushel with the Sept 2024 contract closing at $6.52 a bushel.
The nearby oil futures as of September 15th closed at $90.77/barrel up from the nearby futures recorded in the last Market Trends report of $83.19/barrel. The average price for US ethanol in the US was $2.51 a US gallon, up from the $2.40 last month.
The Canadian dollar noon rate on September 15th, 2023, was .7398 US, down versus the .7439 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
In Ontario crops continue to the finish line. Soybeans are about to be harvested in many parts of Ontario and there is quite a variation in colour and maturity. However, towards the end of September combines should be rolling in many parts of southwestern Ontario. Generally speaking, the soggy summer in much of Ontario and the lack of 90-degree temperatures have made the crop later than normal. Once again, farmers need to hope for a wide-open fall to maximize our corn crop potential.
Ontario basis levels for grain have generally been maintained from last month with the exception of old crop soybeans which has decreased. However, keep in mind that the division between old crop and new crop soybeans changes very quickly as combines start to roll and will likely happen in the next few weeks. The Canadian dollar currently circulating just under the 74 cent level US continues to add stimulus to Ontario grain pricing.
As the soybeans will be harvested, so will the wheat be going into the ground. This year new crop prices are approximately $7.30 a bushel which is considerably less than in past years but much more than the old crop price as of September the 15th. It is unlikely that we repeat the 1.3 million acres of Ontario wheat we had planted last year based on prices alone. However, usually the wheat acreage equation in Ontario was totally related to planting weather in the fall.
Old crop corn basis levels are $1.35 to $1.69 over the December 2023 corn futures on September 15th across the province. The new crop corn basis varied from $.85 to $1.20 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.50 cents to $4.63 over the November 2023 futures. New crop soybeans basis levels range from $3.65-$3.90 over the November 2023 futures. Ontario SRW wheat prices are in the $6.53 range. On Sept 15th the US replacement price for corn was $7.38/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
What is the real value of the grain that we are about to harvest? Obviously, the first answer to that question has to do with the cash prices available to us but on the other hand futures have been trading sideways for the last few weeks. Where is it all going to end up especially when you consider all of the inflationary tumult of the last 2 years.
Demand has been a problem for corn especially on the export side of the equation. For instance, last year corn exports were down 850 million bushels from the year previous. In an alternative universe if that demand had been maintained we’d be looking at ending stocks down to 600 million bushels. That might be fantasy thinking, but it is real, corn exports need to be get back to where they were. Of course, we know all that competition from Brazil is making a difference.
We also know Brazil is making a big difference in their continuing robust soybean economy. With planting starting September 15th, here we go again. Any big move going ahead will need to see soybeans reach back to the highs they were this past July of $14.48 a bushel. That would likely come with reduced supply of American soybeans as well as planting problems in Brazil. Needless to say, soybean prices usually put in a low in early October so the script will need to be written. Even though we have big supply this year, it should never be taken for granted. Production problems can always arise when you least expect it.
This past summer in North America we’ve constantly been talking about weather markets and how they might affect crop prices. Keep in mind within the next two or three weeks as soybeans go in the ground in Brazil weather it will become an increasing concern for the trading algorithms. With their production increasing for both corn and soybeans there is a possibility that traditional seasonality for prices might be as fluid as those Brazilian crop production numbers. It doesn’t get easier; in fact, it might get more complicated.
Commodity Specific Comments
Corn is being combined in the US as of September 15th. Since August, we’ve been in a $4.70-$4.90 trading range. It would seem the market is waiting to see what the yield really is. Yields so far are disappointing in Illinois, Iowa, Minnesota and Nebraska, but better in Ohio and Indiana.
Is a seasonal low being formed? It’s hard to say, but over the last ten years, we’ve seen a seasonal low 90% of the time between August 1st and September 15th. Often times, a short crop gets shorter going forward, and this crop has seen three successive reductions in crop size from USDA.
The December corn contract is currently priced at 14.25 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 35th percentile of the past five-year price distribution range.
The weather window on North American soybeans has passed. Often times this time of year, the market is concerned about an early frost, but that concern has passed. Soybean harvest will be ramping up over the next two weeks. The concern now is when will soybeans decide to give us their seasonal low.
Brazil is about to start planting a 5.9-billion-bushel soybeans crop vs a 4.1-billion-bushel soybean crop in the United States. Brazil never seems to have too many issues growing soybeans, but as they plant their crop, the market will be watching for issues which might become troubling. The US crop is getting shorter, but so is demand. The Americans will hope to steal some of Brazil’s exports if there are production issues there.
The November 2023 soybean contract is currently priced 25 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 66th percentile of the past five-year price distribution range.
Wheat prices have fallen $2.30/bushel over the summer but have shown signs of life in the last few weeks. Cheap can do that. However, there are signs in the fundamentals that things may change. Drought in Western Canada, Australia, and Argentina are weighing in and of course we still have the Ukraine Russia war which is increasingly white hot. Russia has continued to sell wheat cheap, undercutting world values. As it is now, we might be looking at the first global production decline in wheat in five years.
In Ontario wheat planting will commence once soybeans start coming off fields. The big drop in wheat prices is backed up right into Ontario farms, which should influence the number of acres planted. The Canadian dollar continues to be a saving grace for Ontario wheat prices.
The Bottom Line (cont.)
It is such old news for Ontario grain prices, but a Canadian dollar at .7398 US continues to add stimulus to Ontario grain prices. At a certain point this is going to change, but after saying that for at least two years it is amazing the stability of the loonie at this level. In fact, it is hard to imagine a Canadian dollar at 85 and 90 cents or even higher, but the fact is that it will come and when it comes it will translate most likely into much lower Ontario cash grain prices. However, the US dollar continues to show strength and as always, the loonie travels in an inverse direction. The Bank of Canada has kept interest rates stable for the last couple months, but this may change as well with further rate increases.
With the Canadian dollar being to our advantage the risk management never does stop. However, the reality is for wheat prices there is so much competition on the world level that the global market has pushed prices down to a level which many people consider too low. At a certain point that will mean that some producers will stop growing wheat even in places like Ontario. However, as we all know, wheat is planted or harvested every month of the year around the globe somewhere. That’s one reason why when wheat prices are good, they should be captured quickly as opportunity knocks around the world. Surely, Ontario wheat producers will be considering these things as we plant this fall.
Geopolitics continued to matter, but keep in mind so much of this has been dialed into the trading algorithms in Chicago. The quintessential example of this is the Ukraine Russian war where there is live fire every day and it almost seems like the wheat market yawns. There is no safe passage for grain any longer in the Black Sea, but even that has adjusted somewhat to new navigation routes close to the coast. The bottom line with regard to this is nobody knows, and it will continue to be a wild card especially in world feed grain markets.
The challenge for Ontario farmers is to put this all together especially as we head into a time of the year where seasonal lows are realized for both corn and soybeans. Keep in mind, that every year is different and often times there are no wrong answers especially when it comes to marketing grain. Just because the bin shines in the late autumn sun doesn’t necessarily mean it should be filled. Of course, there is always vice versa. Never look back in the marketing rear view mirror. Risk management never grows old, there will be many marketing opportunities ahead.