Special Edition – Market Trends Report – USDA Report April 1, 2024
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US and the World
The end of March always represents a central time in grain markets as USDA gives their official estimates of the acres which will be planted in the upcoming year. At the same time of course farmers across the great North American corn belt we’re not only making plans but also actively getting to the field. The risks are rising not only in the field but also on the marketing horizon. The prospective plantings report can often serve as a benchmark for computer trading into the new year. On March 28th the USDA released their prospective plantings report as well as the quarterly grain numbers.
USDA estimated that the corn planted area will be down 5% from last year estimated to be 90 million acres. This is 4.6 million acres less than a year ago. In fact, planted acreage is expected to be lower or the status quo in 38 of the 48 estimating states. This was a bit of a shock to the market as pre report estimates had put the corn acreage number at 92 million acres. This helped put the nearby old crop May corn month up $0.15 on the day. Corn stocks on March 1st, 2024, totalled 8.347 billion bushels which was up 13% from a year ago.
While the corn production acreage is set to decrease, the soybean planted acreage was actually increased 3% from a year ago and slightly above what pre report estimates had said. USDA is looking at 86.5 million acres of soybeans to go into the ground this year. In fact, soybean acreage is up in 24 of the 29 estimating states. The soybean stocks numbers on March 1st, 2024, was 1.845 billion bushels which was up 9% from a year ago. The market did not have much reaction to the soybean number with the nearby May soybean contract being down one on the day. USDA estimated all wheat planted area at 34.1 million acres which is down 7% from last year. Winter wheat production was down the same 7% from last year.
On March 31st, corn, soybeans and wheat futures were higher than the last Market Trends report. May 2024 corn futures were at $4.42 a bushel. The May 2024 soybean futures stood at $11.91. The May 2024 Chicago wheat futures closed at $5.60 a bushel. The Minneapolis May 2024 wheat futures closed at $6.43 a bushel with the Sept 2024 contract closing at $6.63 a bushel.
The nearby oil futures as of March 31st closed at $83.17/barrel up from the nearby futures recorded in the last Market Trends report of $78.01/barrel. The average price for US ethanol in the US was $2.05, slightly above the $2.04 a US gallon recorded in the last Market Trends Report.
The Canadian dollar noon rate on March 28th, 2024, was .7387 US, down slightly vs the .7423 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 5%.
Ontario
Here we are, it is April 1st, and the unusually warm winter has meant that we’ve already seen field work in many parts of Ontario. In fact, nitrogen application has commenced across several of the 860,000 acres of winter wheat emerging out of dormancy. That will certainly be ramping up in the next few weeks to come and as always, there will be early birds planting corn.
What will be the crop mix this year in Ontario? According to Statistics Canada we’re looking at about 2.3 million acres of corn to be planted this spring in Ontario. Their number for soybeans is 3 million acres which is up 4.3% from last year. Is this intuitively valid and predictable based on the prices that we have seen in Ontario over the last several months? It’s hard to say and it will likely depend on spring weather and how much corn gets planted versus soybeans.
Ontario basis levels for corn and soybeans are very similar to what they were in the last Market Trends report. The Canadian dollar fluttering in the 73 and 74 cent US level has helped. There will be a big ramp up of exporting corn between April and June of this year. However, anytime that you export out onto the high seas you are competing with “cheap”. When the Safrinha crop from Brazil comes on stream later on along with European wheat that will represent strong competition for these Ontario exports.
Old crop corn basis levels are $0.35 to $0.75 over the May 2024 corn futures on March 28th across the province. The new crop corn basis varied from $.80 to $1.10 over the December 2024 corn futures. The old crop basis levels for soybeans range from $2.70 cents to $3.45 over the May 2024 futures. New crop soybeans basis levels range from $2.80-$3.25 over the November 2024 futures. Ontario SRW wheat prices are in the $6.86 range. On March 28th the US replacement price for corn was $6.00/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Despite what the USDA report did, grain markets are still bearish. For instance, what the quarterly grain stocks told us was we have 24% more corn being held in farmers bins than we did a year ago. That still has to come to market. You could also make the argument that to some extent the USDA report put the bear market on hold as we’ve had a slight turn around on prices as the corn acres number is lower than expected.
It is a difficult call for sure to make. For instance, we all know that non-commercial players have been short in all three commodities over the last several weeks and months. Yes, the rally after the USDA report was partly non-commercial players covering their shorts or changing their positions. This usually doesn’t happen very quickly, and it may continue going into April. However, predicting fund behavior is an end game especially in this market. It got more bearish than many analysts could have imagined simply through non-commercial players adding to their short positions.
For the month of March, we saw the near May futures months in both corn and soybeans go up. For instance, the May corn contract was up 12 and a half cents for the month of March. The nearby soybean contract was up 50 3/4 cents in the month of March while the May wheat contract was actually down $0.16. Some might say this represents an opportunity to scale into selling, others may say it’s a start of something today. Clearly, as the April days go by production risks will increase and weather issues will become a bigger issue influencing price.
Having said that, you need to weigh those marketing decisions based on weather. It is true that production delays can be very frustrating at the individual level but over a period of 10 to 12 years American farmers do get the crop planted usually in pretty good order. You have to ask yourselves how comfortable are the funds maintaining their short positions through this time? On top of that sometimes the marketing opportunities are brief considering both of these things. Standing resting marketing orders with your buyer may help.
Commodity Specific Comments
Corn
It is a bit of a new day in the corn market as we have closed passed the 50-day moving average, the first time since October 22nd, 2023. This was looked at as a technical gain which should spook some of the fund managers as they are still heavily short in the corn market. At a certain point that will need to change, likely forced by changing market fundamentals in the near future.
Keep in mind that the weather is warming up and we have that Brazilian Safrinha corn crop growing actively in Brazil. This is adding risk premium to this market, which is normal at this time of year. At a certain point this also will spur selling of old crop. We are 40 cents off market lows.
The December 2024 corn contract is currently priced at 13.75 cents below the March 2025 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 December 2024 futures contract is at the 35th percentile of the past five-year price distribution range.
Soybeans
Soybeans certainly didn’t do much on the report day, but prices are higher than they have been in the last few weeks. In the United States there is always this pent-up crushing demand that is being built based on the US policy on biodiesel. In fact, you could say that the US soybean crush demand is approximately 30 million bushels more than what is estimated.
Of course, let’s remember that the Brazilian crop is a big one and it’s about 70% harvested. Keep in mind that when you combined Brazil Argentina, Uruguay Paraguay and other countries in South America we’re looking at about 215 MMT of soybeans. (approx. 8 billions bushels) The discrepancy between the Brazilian estimate from Conab and the USDA is about 370 million bushels of soybeans. Needless to say, there are soybeans down south everywhere.
The November 2024 soybean contract is currently priced 3.5 cents below the March 2025 contract which is considered neutral for new crop beans. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The November 2024 soybean contract is currently at the 48th percentile of the past five-year price distribution range.
Wheat
Russia continues to dominate the world wheat market pushing out wheat at very cheap prices. This is happening in a white-hot war situation which will continually act as a wild card in the wheat market. However, many people would argue that it’s dialed in. Needless to say, the wheat growing areas of the United States look very good now while there is some dryness in the Black Sea area. As it is, wheat will continue to be the cockroach of grains, hard to kill and grown almost everywhere.
In Ontario we have seen 860,000 acres of wheat coming out of dormancy. There has also been a significant increase in the price of Ontario wheat, a very good thing. However, wheat prices are very much lower than they have been over the previous three years and memories of $15 wheat caused by the Ukraine Russia war still dance in our collective marketing brains.
The Bottom Line (cont.)
The Canadian dollar continues to be friendly to Ontario cash grain prices, fluttering around the .7387 US level, which has muffled the price drop over the last several months. At the same time, it may accentuate any sudden price rise that we see this coming spring. It’s always hard to know but it does represent that extra management component for Ontario grain farmers to manage. That is capturing that favorable futures price and a basis level which is heavily influenced by the Canadian dollar.
As always, the Canadian dollar usually moves in an inverse fashion to the US dollar. Interest rates also have been stable lately, but many are hoping for lower rates later in 2024. This would be bearish for the Canadian dollar, but it is hard to imagine it moving into the 60 cent level US. The Bank of Canada recently released an opinion about the low per capita productivity rates in Canada versus the United States. This gap is widening and if not corrected does not bode well for a Canadian dollar appreciation.
USDA reports will remain important going into April and May, but the end June numbers giving us the actual acres often act as a firecracker to prices. It is important to note in the March 28th USDA report the aggregate acres were down 6.3 million from a year ago. So, in many ways the market signals have worked to reduce total grain acres, which may ultimately manifest itself in higher prices.
As we move ahead it is always important to look minutely at grain market action. For instance, many times it’s important to understand what is happening versus why it is happening. For the most part, we know what happened in the market today or last week, but we always don’t know why it did. Sometimes, that takes a bit of time to reveal itself. The important thing is to be realistic in your expectations and market grain without emotion. That can be a difficult task especially when you are a farmer who has poured everything into that crop all year.
The challenge for the Ontario farmer is to try to measure all of these variables as we move ahead. The grain growing region in Ontario stretches from Windsor to the Quebec border and up into northern Ontario. The market dynamics within these different areas as well as the culture can be completely different than each other. That’s another reason why local market intelligence can be very important. As always, risk management never grows old. There will be many marketing opportunities ahead.
