US and the World
It has been an eventful last few weeks across the Great North American corn belt. What was a tremendous stretch of good planting weather with warm and dry conditions suddenly morphed into something much more troubling as these same conditions have led to declining crop ratings across many US states. This essentially changed the grain pricing narrative from one of abundant crops to one where these crops might be threatened, sparking a weather market. As it is, with all weather-related phenomena it is difficult to tell how this will ultimately manifest itself on US crops. With that as a backdrop, the USDA released their planted acreage estimates on June 30th adding further to the intrigue of the grain pricing equation of 2023.
On June 30th the USDA reported that American farmers had planted 94.1 million acres of corn which was far above anything in trade estimates. For instance, at the end of March they had predicted 92 million acres of corn. The 94.1 million acres reported this year is the third highest corn planting since 1944. At the same time the grain stocks reported on June 1st, 2023, were 4.1 billion bushels which was down 6% from a year ago. That bullish factor with stocks was overshadowed by what was considered a major surprise with the big corn acreage estimate. December corn dropped $0.33/bushel June 30th on the announcement.
While the corn acreage estimate was a major surprise, the same could be said for a big decline in soybean acreage. The USDA said soybean acreage at 83.5 million acres which is 5% lower than a year ago. It was also much lower than trade expectations. On top of that soybeans stocks as of June 1st, 2023, totaled 796 million bushels which is down 18% from June of last year. This number was also way below trade expectations. With this shock to the soybean complex, November soybeans we’re up $0.77/bu on June 30th. USDA estimated that wheat acreage was at 49.6 million acres which was 9% higher than last year and consistent with pre report trade estimates.
On June 30th, soybean and wheat futures were higher than the last Market Trends report. Corn futures were lower. September 2023 corn futures were at $4.88 a bushel. The December 2023 corn futures contracts sits at $4.94/bu. The August 2023 soybean futures were at $14.42 a bushel. The November 2023 soybean futures stood at $13.43. The May 2023 Chicago wheat futures closed at $6.51 a bushel. The Minneapolis May 23 wheat futures closed at $8.17 a bushel with the Sept 2023 contract closing at $7.78 a bushel.
The nearby oil futures as of June 30th closed at $70.64/barrel up from the nearby futures recorded in the last Market Trends report of $70.17/barrel. The average price for US ethanol in the US was $2.55 a US gallon, up from the $2.53 last month.
The Canadian dollar noon rate on June 30th, 2023, was .7553 US, up versusC the .7496 US reported here in the last Market Trends report. The Bank of Canada‘s lending rate remained at 4.75%.
Dry weather has been part of the Ontario narrative for most of the spring. In fact, this was becoming a major problem in June as crops were struggling with dry conditions which earlier had been a tremendous advantage to planting. However, rains came to Ontario in mid-June and have really helped with crop development. As it stands on Canada day 2023 Ontario crops are doing quite well.
Top of mind as we go into July is the big Ontario wheat crop of 1.3 million acres. Earlier, the crop had been impacted by dry weather which for wheat can be a double-edged sword. Often times, dry weather can keep disease at low levels, but it was so dry in Ontario there was much concern about it impacting yield. Recent rains in mid-June and early July certainly have helped. Wheat harvest should be starting up in full swing toward the second week of July.
Ontario basis levels for corn are mixed versus where they were in the last Market Trends report. For instance, basis levels for corn are higher for old crop but lower for new crop. This is a reflection to some extent of the lower futures values and farmer selling in Ontario. The soybean basis levels are slightly lower than they were in the last Market Trends report. This is also a reflection of the Canadian dollar at .7553 US and higher futures prices compared to corn. The wheat basis is also lower reflecting the big crop in the offing.
Old crop corn basis levels are $.95 to $1.42 over the September 2023 corn futures on June 30th across the province. The new crop corn basis varied from $.67 to $1.15 over the December 2023 corn futures. The old crop basis levels for soybeans range from $4.38 cents to $4.80 over the August 2023 futures. New crop soybeans basis levels range from $2.80-$3.25 over the November 2023 futures. Ontario SRW wheat prices are in the $7.28 range. On June 30th the US replacement price for corn was $7.52/bushel. You can access all these Ontario grain prices in the marketing section at http://gfo.ca/marketing/daily-commodity-report/
The Bottom Line
Grain markets can be particularly violent on June 30th and this past Friday was no exception. With crop ratings down to their lowest level since 1988, you would think that things are on fire. However, the USDA has quelled that with an acreage figure on corn much higher than anybody ever expected. The question is now what will be the yield we can achieve and how is that going to be different than what has been projected previously of 181.5 bushels per acre of corn and 52 bushels per acre of soybeans?
Clearly, the American production landscape has changed and with all the dry weather in the American corn belt those yields are likely lower. How much lower is another consideration because rain forecasted in the last week of June and the first week of July does not necessarily guarantee a great crop. It is still a weather market going forward, but keep in mind with rain in the forecast in July in the I-states, it’s going to be very hard to rally the corn market. As of June 30th, we are at 14-month lows in corn.
It’s very different in soybeans. Yes, soybeans remain the great liars, where we can never tell about yield, but now we found out that the USDA says there is a lot less acres available. Looking ahead, even if we hit that record yield of 52 bushels per acre, we’re going to be at pipeline supplies as we move forward. Demand has been softer than last year, and this remains a problem. However, 83.5 million acres is what it is, much less than was expected. August rains will have to be their big time.
The geopolitical risk continues, and it even grew much weirder in June with the Wagner mutiny against the Russian government. How this will play out is anybody’s guess, but a hot war is a hot war, and it will remain a wild card in the grain markets. Russia has said that they will not extend the Black Sea grain agreement, but at the same time both Russia and Ukraine are looking at better wheat crops this year. Russia keeps on supplying the world with cheap wheat. This is manifesting itself in much lower wheat prices compared to last year.
Commodity Specific Comments
In the week leading up to June 30th we had some of the lowest crop ratings for corn in the United States since 1988. By the end of the week with the USDA coming out with big numbers as well as a weather forecast corn prices had lost over 20%, which was the worst week in the corn market since the financial crash of 2008.
The two headed monster with regard to corn prices into June 30th was rain in the forecast and the USDA’s big surprise. As it is, it is difficult to rally the corn market in July especially when there is rain in the forecast. As we move ahead, this is still a weather market and producers need to be watching those forecasts and reading the reports of US crop conditions. Keep in mind that declining crop ratings in June do not necessarily translate into lower yields in October and November. Sometimes, July and August weather can bail out the corn crop.
The December corn contract is currently priced at 11 3/4 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 39th percentile of the past five-year price distribution range.
The same two headed monster that affected corn prices will be affecting soybeans, but in a very different way. The 83.5-million-acre figure for soybeans is very bullish and even with big yields we will still be at pipeline supplies going ahead for soybeans. Yes, there is always that big Brazilian supply which is almost becoming a default. However, it remains a weather market and for soybeans hot and dry into August usually defined soybean yield.
The odd thing about the different directions in corn and soybean prices is that they usually don’t do that. In other words, they usually move in concert with each other based on crop conditions. It begs the question will corn drag soybeans down or will soybeans drag corn up in the next few weeks? Unfortunately, China’s demand for soybeans is slowing with their demand down 200 million bushels from this time a year ago.
The November 2023 soybean contract is currently priced 17 and a quarter cents above the March 2024 contract which is considered bullish. Seasonally, soybean prices tend to peak in early July and bottom out in early October. The November soybean contract is currently at the 69th percentile of the past five-year price distribution range.
Unfortunately, wheat followed corn in going down into the June 30th USDA report. The nearby wheat contract lost approximately $1.40 per bushel, not what you want to hear especially with wheat almost ready to go in Ontario fields. At the same time, we found out this past week that both Russia and Ukraine are expecting more wheat this year. It all had a dampening effect on wheat futures prices.
In Ontario at the end of the day going into June 30th we had lost over a dollar a bushel for new crop wheat in about a week’s time. That is how violent these markets have been during the dry weather in the United States. At the same time the lower Canadian dollar is keeping wheat prices above $7.00 a bushel, hopefully a floor as we move ahead. As always, wheat harvest will be a bit of a mystery, as quality is always a concern when harvesting wheat.
The Bottom Line (cont.)
With grain futures prices swooning, there is always the Canadian dollar to help us. The Canadian dollar has been hovering between about $0.72 and $0.80 US over the last eight years. At a certain point it’s going to break out, but not as long as the US dollar is king. In any case, it takes the edge off Canadian cash prices when we have a currency this low against the US dollar. Our history tells us that it will not remain there, and we will eventually rise and go over par again. However, that is rare in our history, and it is unlikely very soon. As always, the great challenge is for Ontario farmers to find a balance between a low Canadian dollar and a higher grain futures price.
It goes without saying that as we continue into July the weather market is still very important for both corn and soybeans. In five trading sessions in the last week of June we saw corn go down about $1.30 a bushel, which is extreme. However, it does represent the degree of volatility that you can see when crop prices are simply dependent on what the weather is doing during those days. In the next few weeks if it continues hot and dry in some growing areas there is a possibility that soybeans take off and try to bring corn with them. We all know the alternative of rain makes grain. How this will play out will certainly define prices going into August and September.
It’s also important to point out that our friends in Brazil are doing well with the Safrinha corn crop. The harvest is going well with no particular problems showing up. This is casting a long shadow on American corn prices. Currently as of June 30th July corn is trading for the equivalent of $4.67 a bushel on the Bovespa Exchange in Sau Paulo. Despite our temptation to look the other way the corn futures market has erased the breakout of early June and now the trend in both old crop and new crop contracts has turned down.
The challenge for Ontario farmers is to measure all of these different marketing factors and keep abreast of weather reports and crop ratings. We are at a crucial part in the marketing year and then the next few weeks many traders will decide whether the corn crop is made. For soybeans it might take a little bit longer as August rains are always important. It is no time to step away from our marketing risk management plans. There will be many marketing opportunities ahead. Take those emotions out of the decision-making process. Have those standing market orders ready. Daily market intelligence will remain key.