US and the World
The shed doors are open, the sun is starting to warm things up and farmers across the Great North American corn belt are getting ready to plant. It is that time of year where everything is possible in our farm fields as plans which have been honed throughout winter become more focused and the fields become drier. In the southern hemisphere harvest has been advancing in Brazil, while our Argentinian friends have had the worst of times with one of the toughest droughts ever. For North American farmers, let that be a reminder that in this season of hope farming is a risky business and the weather has so much to do with our bottom lines. On March 31st, the USDA released the Prospective plantings report as well as quarterly stocks numbers.
As USDA reports go, the March 31st report is one of the big three of the year along with the June 30th report and the January final crop report. This year did not disappoint with the USDA estimating that farmers in the United States will plant 91.99 million acres of corn and 87.51 million acres of soybeans. This was more corn acres than the trade expected and slightly less soybean acres. The corn acres number of almost 92 million acres was up 4% or 3.42 million acres from last year. In fact, corn acres are up or unchanged in 40 of the 48 estimating states. Total corn stocks reported on March 1st, 2023, was 7.401 billion bushels which was down 5% from the same time last year.
The soybean acreage number of 87.51 million acres was up slightly from last year. The soybean acreage estimate was based on planted acreage either being up or unchanged in 15 of the 29 estimating states. Total stocks reported on March 1st, 2023, was 1.69 billion bushels which was the lowest in six years and lower than pre report estimates. The wheat acres for 2023 are estimated at 49.85 million acres which is up about 9% from 2022. The winter wheat planted area of 37.51 million acres is up 13% from last year.
On April 1st, corn and wheat futures were higher than the last Market Trends report. Soybeans futures were lower. May 2023 corn futures were at $6.60 a bushel. The December 2023 corn futures contracts sits at $5.66. The May 2023 soybean futures were at $14.75 a bushel. The November 2023 soybean futures stood at $13.19. The May 2023 Chicago wheat futures closed at $6.92 a bushel. The Minneapolis May 23 wheat futures closed at $8.96 a bushel with the Sept 2023 contract closing at $8.97 a bushel.
The nearby oil futures as of March 31st closed at $75.67/barrel down from the nearby futures recorded in the last Market Trends report of $76.68/barrel.
The Canadian dollar noon rate on March 31st, 2023, was .7389 US, up versus the .7229 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate increased to 4.5%.
In Ontario winter has been stubbornly holding on but as April dawns we’re hoping for better things. There has been some side dressing of wheat already in the deep southwest of Ontario. This will certainly increase over the next couple weeks with improving weather. Of course, everybody knows that we have a record Ontario wheat crop in the ground emerging from winter virtually unscathed. The challenge will be to find a home for this wheat over the next year. We are looking at about a 44% increase in production versus 2022, so the challenges will be real. Keep in mind that mother nature will have the last say.
Ontario basis levels have either remained status quo or decreased partly reflecting the reduction in futures price value over the last couple of weeks. It is always more pronounced in soybeans and wheat than it is with corn as the foreign exchange effect is greater. The Canadian dollar is still maintaining very low levels, but futures prices have dropped off in soybeans from a month ago. That is reflected in basis and as we move ahead it will be a continual challenge for Ontario farmers to watch foreign exchange fluctuations as well as futures price movements.
The Ontario marketplace for grains continues to change and redefine itself. This past winter we’ve seen the Port Colborne elevator sold to LAC as well as DG Global acquiring several different elevators in the deep southwest of Ontario. Moving grain will continue to be important out of Ontario. Sending corn for instance to Europe has been a preferred market over the last several years. This is set to continue. Of course, as always it would be good to increase the amount of Ontario processing of Ontario grain right here where we farm. More of this would certainly be advantageous for market prices.
Old crop corn basis levels are $1.00 to $1.40 over the May 2023 corn futures on March 31st across the province. The new crop corn basis varied from $1.10 to $1.40 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.75 cents to $5.10 over the July 2023 futures. New crop soybeans basis levels range from $3.82-$4.00 over the November 2023 futures. Ontario SRW wheat prices are in the $8.23 range. On March 31st the US replacement price for corn was $9.07/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 is a new day. What we’ve seen over the last several weeks has been an erosion in futures prices, but now as April has dawned there seems to have been a bit of a reversal. The USDA quarterly stocks report proves that demand is still very strong for grain with disappearance impressive versus the year ago. Generally speaking, the USDA data dump released on March 31st was bullish for soybeans, bearish for new crop corn and relatively neutral for wheat.
Grain prices have rebounded but are still not what they were a couple of months ago. The question is what happens next and where will be our next opportunity to price grain in 2023? Keep in mind that simple seasonality tells us a lot and generally speaking corn prices top out in mid-June and soybean prices top out in early July. There is also an argument to be made that because of satellite imagery and modern techniques that this seasonality might even be earlier. If we assume good crops this year in North America, then we must be proactive to price grain within this seasonality window.
Keep in mind that this is a fluid situation. For instance, the USDA is predicting almost 92 million acres of corn, but we know that North Dakota, South Dakota, Minnesota and other parts of the upper US plains are inundated with snow and freezing temperatures. In those areas it’s a long way from spring and this could shift acres out of corn. In fact, as per usual, weather conditions are king, and we must keep some room in our marketing focus for flexibility. There might even be prevent plant acres throughout large parts of the United States. Drought continues in the US southwestern plains.
Grain price fundamentals are one thing and non-commercial demand is another. In other words, keep in mind that despite all of the supply and demand estimates, the “funds” or non-commercial players within the market have a huge impact on price direction. They read the seasonality on an annual basis just as good as anybody else and they have the information available to them. It’s all dialed into the algorithms. If we have a good crop going into late spring, they could sell this market off. On the other hand, you know the drill if this upcoming US crop gets in trouble. Simply put, non-commercial demand or what the funds will do will remain key to knowing market direction. One of the best market intelligence factors to look at in this regard is the funds positions on a weekly basis.
Commodity Specific Comments
Corn prices are still very strong historically, despite recent softening of futures values. The USDA report with their 4% rise in corn acres might be hard to be fulfilled based on the cold snow packed acres still in the US northern plains. The weather will have to change quickly for corn acres to have their place there. of course, what doesn’t get planted into corn will most likely go into soybeans. It’s all part of a moving target as we look ahead.
With the USDA report in the rear-view mirror, much of the focus going forward will be on US planting pace and the Brazil Safrinha corn crop and associated weather. China has been a big buyer of US corn lately but look to this to be supplanted by Brazil in the future. However, for the next few months The US will remain the world’s number one export market for corn.
The May 2023 corn futures contract is currently $0.24 greater than the July 2023 contract, which is a bullish indication of old crop corn demand. The December contract is currently priced 7 and half cents below the March 2024 contract, which is considered a bearish indication of new crop demand. Seasonally, corn prices tend to peak in early June and bottom out in early October. The new crop futures contract is currently in the 55th percentile of the past five-year price distribution range.
With the March soybean stocks being the lowest in six years and on the lower side of pre report estimates, it was a welcome commentary on demand for US soybeans. Prices rocketed upward on report day, and this should be telling going forward with regard to any incentive to switch over from corn to soybeans. Needless to say, Brazil has a record crop of soybeans which are being distributed throughout the world grain pipeline. Argentina will be importing some soybeans from Brazil this year to take the place of beans which were lost during their devastating drought.
Keep in mind that the Argentinean soybean crop is now looked at as a dismal 25 million metric tonnes, which likely will lead to greater US soybean meal sales. When you combine this with the increased renewable biodiesel capacity in the United States it bodes well for soybean demand and basis levels. Of course, this is before we plant one soybean this spring so there is lots of risk ahead. As is, May soybeans rose above the 50 day in 100 day moving averages on March 31st which has only be considered bullish going forward.
The July 2023 soybean futures contract is currently 54 cents above the August 2023 soybean futures contract, which is an indication of bullish old crop demand. The November 2023 soybean contractors is currently priced 2.5 cents above the March 2024 soybean contract which is a bullish indication of commercial demand. Seasonally, soybean prices tend to peak in early July and bottom in early October. The new crop futures contract is currently in the 66th percentile of the past five-year price distribution range.
Wheat is at very low prices despite the fact that US and world wheat supplies are historically tight. In fact, you could say that the wheat market has been maddening to decipher as you would think that prices should be much higher. That said, it is oversold as of April 1st. Keep in mind that Russia has been selling wheat at fire sale prices in the Black Sea region. This situation as dark as it is with Russia and Ukraine will probably continue to fester with wheat price discovery.
In Ontario, the 1.3 million acres of wheat is coming out of dormancy and generally speaking it looks good. A large amount of this crop will have to be exported as Ontario does not have the capacity to process all of this wheat. of course, it is along several months until harvest time and prices are decent even though they are far below last year’s level caused by the spike from the Ukraine Russia war. It is improbable and unlikely that that price will happen again so conveniently for Ontario farmers. However, war markets are fickle at the best of times.
The Bottom Line (cont.)
The Canadian dollar continuing to bounce around in the $0.72 cent and $0.73 US level is providing stimulus to Ontario cash grain prices. This might be an old story over the last year, but it continues. It is always a reflection of the inverse of the US dollar, but also a measurement of where Canada’s fiscal numbers are. In the recent federal budget, the deficit was estimated at $40.1 billion. As we move ahead, it is unlikely that the Canadian dollar moves down into the 60 cent levels, but it is not unprecedented. A movement back into the 80-cent level has more historical significance, which should make Ontario grain farmers concerned about future Ontario cash grain prices. Needless to say, our foreign exchange component of basis will continue to challenge our marketing acumen.
Combining our Canadian basis opportunities with futures prices may come into focus within the next few months. A spring rally may be in the offing especially off the lows we have seen recently. Over the last 15 years about 2/3 of the time we have seen a spring rally of $0.95 in corn and $1.73 cents in soybeans per bushel from the lows of late March into the seasonal high of mid-June and July. Will this happen in 2023? Well, it’s always hard to know except that history tells us a spring rally is in the offing and this year maybe we should pounce on it. it’s all part of our risk management equation.
We still have all of our geopolitical concerns. A constant in this market are the problems in Russia and the Ukraine which at any time could cause volatile grain price movement. Chinese demand for agricultural commodities has been fairly strong from the US over the last few weeks and it will likely continue through gaps in their Brazilian lifeline. Then there is our crop weather story going forward. You know how that works. The challenge will be for Ontario farmers to put all of these marketing factors together. As we move ahead there will be many marketing opportunities ahead. Daily market intelligence will remain key. Risk management never gets old.