US and the World
Time is wearing on. The March 31st USDA report always serves as a quasi-semi-official start of the new crop year. With planters already rolling in some parts of the southern US Corn belt farmers are busy preparing for spring. The end of March USDA report with its prospective planting acres based on survey data often servers as a lightning rod for market action. This year it came after a six-month incremental rally in grains, which wasn’t expected last year at this time. Going into the report, we knew we needed more acres of just about everything. What we got was a big surprise. Putting some kind of context on 2021 grain markets as we move ahead remains a challenge.
On March 31st, USDA pegged 2021 corn acres to come in at 91.1 million acres, which was below trade expectations. USDA pegged American soybean acres to come in at 87.6 million acres, much below trade expectations. Earlier in February, the USDA at their outlook conference had predicted 92 million acres of corn and 90 million acres of soybeans. Overall principal crops in the US were expected to be 6.1 million more acres in 2021. The USDA pegged all wheat acreage to be up 5% from last year at 46.4 million acres. Corn and soybean prices locked limit up on the USDA news.
The lower acreage prediction were accentuated by bullish quarterly stocks of corn and soybeans. Soybeans stocks as of March 1st came in at 1.56 billion bushels, which was 31% less than a year ago. Soybean usage from December to February was up 39% from last year. USDA pegged corn stocks at 7.7 billion bushels, which is the lowest in 6 years and down 3% from last year. Corn disappearance from December to February 2021 was 3.59 billion bushels, slightly more than the 3.38 billion bushels reported a year ago. Wheat stored in all positions was 1.31 billion bushels down about 7% from a year ago.
On April 1st, corn futures were higher than the last Market Trends report. Soybean and wheat futures were lower. May 2021 corn futures were at $5.59 a bushel. The May 2021 soybean futures were at $14.02 a bushel. The May 2021 Chicago wheat futures closed at $6.11 a bushel. The Minneapolis May 2021 wheat futures closed at $5.99 a bushel with the September 2021 contract closing at $6.17 a bushel.
The nearby oil futures as of April 1st closed at $61.45/barrel down from the nearby futures of recorded in the last Market Trends report of $65.61/barrel. The average price for US ethanol on April 1st in the US was $1.97 a US gallon up from the $1.90 recorded in the last Market Trends report.
The Canadian dollar noon rate on April 1st was .7959 US, higher than the .8004 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 0.25%.
In Ontario, March was unusually warm, which had some farmers hitting the ground early, real early in some cases in southwestern Ontario. In fact, some spring cereals were planted, some sugar beets in the deep southwest of Ontario. In fact, one retailer commented that he was talking his clients out of applying fertilizer as the date was March 18th. It was that early. However, as the calendar turns into April, nitrogen side dressing will surely increase across Ontario. Wheat will spring to attention and inevitably, those first corn seeds will be planted.
Basis levels for Ontario corn and soybeans have actually increased since the last Market Trends report. This would partially reflect a slight weakening of the Canadian dollar and the strengthening of grain futures values post the March 31st USDA report. Eastern Ontario old crop corn basis is reflecting similar values to southwestern Ontario. However, on the new crop side of the ledger, new crop corn values are higher than southwestern Ontario. The Canadian dollar briefly flirted with 80 cents US earlier in March, but since has kept closer to the mid 79 cent level.
Focus has surely changed to the new year ahead. Ontario farmers look out and see big premiums for old crop over new crop pricing. Keep in mind there are two separate market structures at work here. With old crop, it’s based on nearby futures prices where the physical supply is not there. New crop is more of a leap of faith with the story yet written. In Ontario, like everywhere else in the northern hemisphere, the new crop script is yet to be written. Price your Ontario grain into the new crop reality. Keep in mind, at some point, in summer, these prices are likely to come together.
Old crop corn basis levels are $1.40 to $1.58 over the May 2021 corn futures on April 1st across the province. The new crop corn basis varied from $0.90 to $1.40 over the December 2021 corn futures. The old crop basis levels for soybeans range from $3.60 cents to $3.74 over the May 2021 futures. New crop soybeans basis levels range from $2.80-$2.94. Ontario SRW wheat prices are in the $7.37 range on April 1st, with new crop values in the $7.06 range. On April 1st the US replacement price for corn was $7.65/bushel. You can access all of these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Prices are very healthy as we look ahead, especially so versus recent history. Do you take risk off the table? Sure, profitability never hurts anyone, but keep in mind crop prices are not always range bound, locked in over the years. If 2020/21 has told us anything, it’s that prices can move beyond where they have been for several years. There are always new pricing realities to measure and that’s where we find ourselves now.
Brazil is now the source of almost all Chinese soybean buying as another record Brazilian harvest is nearing completion. Brazil is expecting some moderate rains, but it likely won’t affect the rest of harvest. As we look ahead, it will be optimum to keep abreast of Brazil/China soybean shipments. It’s hard to imagine it would be like last year, where Brazil ran out, but it might be. China’s appetite for soybeans continues at an insatiable pace.
This is a very good thing for North and South American farmers, but keep in mind there are still issues between Canada, the US, and China. Both the Trudeau and Biden administration have launched sanctions against Chinese government officials. There is also the trifecta of problems caused by the American extradition order for Meng Wanzhou from Canada. It would be nice not to anticipate further trade sanctions regarding agricultural commodities between these countries. However, it’s not beyond the realm of possibility and always should be in the back of our marketing minds.
We are moving into a part of the year where weather will become an even more important part of our marketing mindset. As farmers, we know, that’s the whole thing with regard to our production risk. With our precarious old crop stocks figures, it will be even more telling this year. At the present time, the US drought monitor has expanded in the western Dakotas, northern Iowa, Wisconsin and Michigan. Part of our daily market intelligence needs to be weather intelligence as we move forward. It’s that time of year and with seasonal highs usually put in June and July, these weather forecasts are increasingly important now.
Commodity Specific Comments
Is 91.1 million acres of corn enough, based on current demand? It’s unlikely, which adds to the uncertainty in prices direction this year. Of course, we all know this will be settled later this year with a big adjustment coming June 30th with spring weather patterns having a big say in it.
Keep in mind, USDA did what it did and both old and new crop corn were limit up on report day. For many producers the idea of having old crop to sell is long in the rear-view mirror. Keep in mind the old crop and new crop have somewhat different market dynamics. We’ve got a long way to go until harvest time. There is much production risk ahead.
The May 2020 corn futures is currently 16 cents above the July contract, which is very bullish. Seasonally, corn prices tend to peak in early June and bottom in October. The nearby spot contract is currently in the 92nd percentile of the past 5-year price distribution range.
Soybeans have quite the story. On the one hand, old crop stocks are on fumes and the spectre of that on the new crop side continue to be a theory. For instance, new crop soybeans were up 57 cents on the week of the March 31st USDA report. It’s no secret, 87.6 million acres of soybeans is not enough headed into this season.
Soybeans can be the great liars, but in the end always tell the truth. In 2021, soybeans will need good weather and rains in August to keep that new crop prices at bay. An argument can be made, the market needs 90-90.5 million acres of soybeans. The 87.6 million might serve as a benchmark for where this market needs to go on price to get those acres.
The May soybean futures contract is currently 9 cents above July, which is considered bullish. Seasonally, soybeans tend to peak in early July and bottom in October. The current spot soybean futures month is in the 91st percentile, based on the past five-year price distribution range.
Wheat hasn’t joined the party lately vs corn and soybeans, as futures prices topped out in late February and been in slow decline since then. Export taxes in Russia and lots of wheat feeding might help. However, good rains in the American wheat belt has boosted prospects. As per usual, wheat is grown everywhere in all months of the year, so any problems are often covered up quickly. Weather reports and geopolitical events will surely shape the price picture into later spring and summer.
In Ontario, wheat looks good in southwestern Ontario. With 1.12 million acres of wheat in Ontario representing a higher number than usual, it might cause more competition for corn and soybean acres. Needless to say, the next few weeks will be busy with nitrogen application. $7 plus wheat off the combine is still to be had in Ontario. The Canadian dollar value continues to have a big effect on Ontario wheat cash prices.
The Bottom Line (cont.)
The value of the Canadian dollar continues to dance near the 80 cent US mark. Generally speaking, it puts Ontario farmers in a very good spot based on current futures values. New crop soybeans at $15.50 and above and $6 new crop corn are reality. As always, the Canadian dollar value responds in an inverse fashion with the US dollar, has shown more resiliency lately. If you believe the US dollar is heading back up into 2021, expect the loonie to soften. There is no easy way to know and no easy way to balance grain futures values and Canadian dollar induced Ontario basis. However, balance our market strategies is a must and that will continue to be a constant into 2021.
In Ontario, our crop distribution will be an intriguing mix. With 1.12 million acres of wheat and a finite supply of Ontario acres, how will corn and soybean acres pan out in 2021? Will there be 2.1 million acres of corn and 3.0 million acres of soybeans in Ontario or does that big wheat number impact the number of soybeans instead of corn. Or does $15.50 new crop pricing for soybeans steal from corn acres. Or will weather determine the crop mix, as in if we have another 2019 spring, which was abysmally wet, do corn acres suffer? It’s all in the mix and basis levels will surely flex based on that reality.
Geopolitical events and Covid will certainly weigh in going forward. Vaccinations are lagging in Canada, western Europe and other parts of the world, not so much in the United States. If this eventually translates into good news to a post Covid world, pent up demand will likely give effervescence to global markets. On the other hand, if Covid continues to linger, the economic response will be tempered. On top of this will China once again enter the corn market to buy a billion bushels of American corn. Oh, so much to think about.
As we move ahead, the challenge for Ontario farmers will be to balance all of these market factors. New crop Ontario soybeans of $13, $14 and $15 as of April 1st are all in the rear-view mirror, six months ago, something that would have been unheard of. From a marketing perspective, it’s important to keep that in mind. Historical and seasonal perspective is always important. This maybe an outlier year like no other, or not. As always, risk management never grows old. There will be many grain marketing opportunities ahead.