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Special Edition – Market Trends – USDA Report June 30, 2021

US and World

July represents a critical month for crops across the great North American corn belt.  Corn pollination gets started and finished for much of the crop, and weather has a huge impact at this time of the year on final yield.  2021 shouldn’t be different than any other year in that regard.  As of June 27th, USDA rated US corn as 64% good to excellent and soybeans 60% good to excellent.  This seems good but was the 10 lowest good to excellent rating in the last 12 years.  There has been rain in vast parts of the corn belt and drought in Minnesota, the Dakotas and points west.  Summer weather will continue to impact crops into July and August.  Setting the table for a sizzling summer was the USDA, which on June 30th came out with their long-awaited planted acres and stocks report.

On June 30th USDA estimated lower acres than the trade had expected.  Corn acres are expected to be 92.7 million acres, and soybeans were pegged at 87.6 million acres, the same as their March estimate.  These estimates were higher than last year respectively by 2% and 5%, below many expectations, which came out of the high price environment of the last few months and the numbers from initial March 31st report.  All wheat acres came in at 46.7 million, an increase of 5% from a year ago, but still the fourth lowest on USDA record.    When harvested acreage and yield (177 bpa and 50 bpa) is taken into consideration, we can expect 14.956 billion bushels of corn this fall and 4.335 billion bushels.  These are still very big crops.

The June 1st grain stocks are also an important consideration within the June 30th USDA report.  Corn stocks as of June 1st were 4.11 billion bushels, which was 18% lower than this time last year.  The USDA also pegged 767 million bushels of soybeans on hand as of June 1st, which was 44% less than stocks a year ago.  Wheat stocks on June 1st were the lowest in six years at 844 million bushels.  The June 30th report was a bullish turn for markets at a critical time of uneven crop weather. 

On July 2nd, corn, soybean and wheat futures were lower than the last Market Trends report.  September 2021 corn futures were at $5.92 a bushel.  The November 2021 soybean futures were at $13.99 a bushel.  The September 2021 Chicago wheat futures closed at $6.52 a bushel. The Minneapolis September 2021 wheat futures closed at $8.38 a bushel with the September 2021 contract closing at $7.30 a bushel.

The nearby oil futures as of July 3rd closed at $75.16/barrel up from the nearby futures recorded in the last Market Trends report of $70.91/barrel. The average price for US ethanol on July 2nd in the US was $2.41 a US gallon down from the $2.43 recorded in the last Market Trends report.

The Canadian dollar noon rate on July 2nd was .8095 US, lower than the .8232 US reported here in the last Market Trends report. The Bank of Canadas lending rate remained at 0.25%.

 Ontario

A few combines have dipped into wheat fields in Ontario’s deep SW, but full-on wheat harvest is still about a week away.  There will be a few challenges this harvest season as some of the wheat is lying flat after some rogue June storms knocked it down.  With strong wheat prices, farmers will be looking for good weather in July to get the wheat to the finish line.

Weather has been variable.  Large stretches of Ontario to the East have been unusually dry and would welcome rains at any time.  Other parts of Ontario have been just about perfect for rainfall, but other areas like Chatham Kent suffered incredible crop damage from rains in the 6–9-inch rains, which overwhelmed drainage systems on the last weekend in June. As we move ahead crops look good going into July. 

Old crop corn basis jumped substantially at the end of June.  $9 old crop corn is the reality for farmers who still have some.  A jump in US basis helped this along with a slight weakening in the Canadian dollar.  The Canadian dollar has retreated approximately 1.5 cents over the last two weeks adding stimulus to Ontario soybean and wheat prices.  Both old crop and new crop soybean basis has increased from the last Market Trends report.

Old crop corn basis levels are $1.84 to $2.85 over the September 2021 corn futures on July 2nd across the province.  The new crop corn basis varied from $.8 to $1.40 over the December 2021 corn futures.  The old crop basis levels for soybeans range from $3.92 cents to $4.16 over the September 2021 futures.  New crop soybeans basis levels range from $2.60-$3.01.  Ontario SRW wheat prices are in flux the spot price in SW Ontario approximately $7.59.   On July 2nd the US replacement price for corn was $9.15 /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 about the weather now.  That’s an old axiom, but it holds resonance.  As 2021 has worn on, we’ve got drought in Western Canada and the Dakotas, Minnesota and NW Iowa.  However, there has been rain many other places, damaging so in many areas.  If things turn hot and dry everywhere, this crop will get smaller.  However, as is, there have been many good chances to price this crop.  The wrong weather in the next few weeks will define just how big this crop will be.

There are legitimate questions about demand, specifically about Chinese demand for grain.  It is likely to continue, but of course, the winds of geopolitics can cause issues.  There is a world-wide shortage now of computer chips, largely being hoarded by China, as an afterthought to the trade issues of the past few years with the United States.  Trust is such an important factor to make trade work and building it back has been difficult.  When it comes to agricultural trade, it’s the same thing.  Last year’s China demand for North American agricultural commodities was a good start.  With Brazil’s corn crop down significantly, expect a renewal of China US agricultural trade if trust remains.

There have been problems in Brazil.  Specifically, the later planted Safrinha crop ran into drought issues earlier, which was dialed into corn prices.  However, it got worse in late June as frost hit the corn in a wide area.  There has been significant damage.  For instance, in Parana state, there has only been 1% of corn harvested as of June 28th.  Its estimated there 25% of the corn had light damage, while the other 75% will suffer significant damage. Its counterintuitive for Ontario farmers to think of frost this way but think about a frost in late August here.  It’s almost inconceivable to imagine. 

The Safrinha crop was forecast to be 76 MMT by Conab, but was reduced before the frost to 66 MMT.  With three nights of frost in some of these area, it’s not hard to imagine a Safrinha corn crop of 50-55 MMT is not out of the question.  When you consider big customers like China wanting feed grains, all this matters.  Ditto for the crop in the United States.  An argument can be made we need all the big crop now growing in the fields to satisfy demand which has been buoyant. 

Commodity Specific Comments

Corn

There is lots of flux in corn futures markets as we head into July.  The USDA report did what it did, but markets backed off in the two days after the report.  The bullseye on corn pollination in the US is approximately July 15th -30th and depending on what weather model you believe; it could be hot and dry.  Clearly, we’re trading a weather market into July. 

Keep in mind, this is still a big crop as we sit on July 2nd, 2021.   14.956 billion bushels of corn and 4.335 billion bushels of soybeans if realized will go a long way to filling that supply chain.  However, we’re not there yet as weather will define that prophecy.  Demand will also need to just as robust to maintain current prices.

The December 2021 corn futures contract is currently 6.25 cents below the March contract which is considered bearish.  The nearby corn futures contract is currently in the 64th percentile of the past five-year price distribution range.  Seasonally, corn prices tend to peak in early June and bottom out in early October. 

Soybeans

Soybeans led the charge out of the price doldrums starting late last summer and as we look ahead it doesn’t seem over with November soybeans closing at $13.99 on July 2nd.  As it is, a national 50 bushel per acre yield will not be enough to meet USDA’s anticipated demand of 4.42 billion bushels.  87.6 million acres of soybeans wasn’t enough in the March report and isn’t enough now.

Higher yields would certainly help that and soybeans being the great liars may certainly change that paradigm.  However, the hot and drier forecast continues into July.  Soybean prices are also benefiting from the declining canola crop conditions in western Canada.  We’ll need lots of rain in August to boost soybean yields higher.

The November soybean futures contract is currently priced 21 cents above the March 2022 soybean future contract, which is considered bullish.  The nearby futures contract is currently in the 69th percentile of the past five-year price range.  Seasonally, soybean prices tend to peak in early July and bottom in early October. 

Wheat

SRW wheat harvest continues in the US with little rain expected to slow harvest conditions over the next two weeks.  Of course, the wheat market is separated by class and Minneapolis spring wheat is encountering similar drought conditions as western Canada boosting wheat prices.  In many ways, wheat prices have followed corn prices to some extent.  Price movements especially at this time of year can be a bit wonky especially for SRW wheat as harvest progresses.  Wheat quality can always be a big issue.

In Ontario wheat harvest will be ramping up big time in the next couple of weeks in southwestern Ontario and then move east through the province.  The crop should be a good one as it came out of winter in good condition.  Ontario cash prices have been strong.  Some buyers are offering discounted drying and trucking for wheat, which offers a unique aspect to this harvest season. 

The Bottom Line (cont.)

China cannot be emphasized enough in this current crop year.  Yes, trust will remain important from a geopolitical sense.  China went from importing no American corn to buying 921 million bushels.  Certainly, low prices at the time had something to do with that. Presently, the price of corn on China’s Dalian Exchange is approximately $10.30/bushel, for soybeans approximately $18.01/bushel.  It’s obvious they could do better elsewhere, as they build back their swine herd post ASF.  These market indications plus USDA estimates should lead to China importing 1 billion bushels of corn this year 2021-22.

While the Canadian dollar did gain almost 20% over the last year, it did drop down to 80.1 cents from its high of 83.26 on June 1st.  This has helped basis levels in Ontario over the last month and was a reaction to the US dollar going up.  What’s the future?  It’s hard to say, as post Covid economic growth should be strong in both the US and Canada, which should bode well for both currencies.  The thinly traded loonie will always react in an inverse fashion to the US dollar.

The question is are we moving into the post Covid world?  In Ontario, our vaccination numbers are high compared to the rest of the world, ditto for the other Canadian provinces.  However, outside of Canada and the United States, Covid is still rampant and a drag on global economic growth.  This is not good for grain demand, but eventually, it likely will turn around and become less of an issue.  The key will be to vaccinate the whole world.  Covid 19 was a pandemic calamity not seen in over 100 years.  Its effect on our global supply chain cannot be underestimated and getting to the other side continues to be job one. 

It’s headed into the home stretch for Ontario crop development.  Just like the American Midwest corn pollination sweet spot, ours is close to the same.  We need the good weather too, in order to truly take advantage of these profitable prices.  It will take daily market intelligence to measure these market factors.  Ontario wheat harvest will be a good example.  Wheat prices and quality will likely be in flux, as will local marketing opportunities.  Market your crop profitably and comfortably.  There will be many marketing opportunities ahead. 

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