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GFO releases market trends report for June and July

GFO releases market trends report for June and July

Notes that Ontario new crop cash prices have fallen about $2 a bushel over the past month.

By Andrew Joseph, Farms.com; Image via Grain Farmers of Ontario

The Grain Farmers of Ontario (GFO) have released a market trends report forecasting June and July of 2022.  

Although the report provides its examination of the US and the rest of the world, Farms.com will only provide the details on the Ontario side of things. The Full Report is available HERE.

Ontario Trends
In Ontario crops continue to be planted and of course many crops are away to the races. There has been a wide variability in rainfall across the province. Spring rains have been welcoming to help with crop development. However, this has not been the case where too much rain has been received sometimes in downpours of three inches or more. In these cases, soybean planting has been delayed and replants may be taking place in many fields in southwestern Ontario.

The 600,000 acres of Ontario wheat continues to develop toward an early July harvest. Ontario new crop cash prices have fallen about $2 a bushel over the last month which is much more reflective of the geopolitical nature of wheat futures prices than anything else. The $13 a bushel for wheat is still a record price for many Ontario farmers.

Ontario basis levels for corn and wheat has decreased slightly over the last month based on lower grain futures prices and higher Canadian dollar. Soybean basis increased slightly. However, Ontario cash prices for grain are still at very healthy levels. Basis levels in the US reflect the bullish nature of the grain market and this is spilling into Ontario and Quebec. Of course, looking forward, nobody really knows the future of the Ontario crop, which will ultimately give clues to see where our Ontario basis for grains ends up. With the Bank of Canada raising interest rates, this is usually always bullish for the Canadian dollar.

Old crop corn basis levels are $1.45 to $1.90 over the July 2022 corn futures on June 11, 2022, across the province. The new crop corn basis varied from $1.30 to $1.80 over the December 2022 corn futures.  

The old crop basis levels for soybeans range from $4.90 cents to $5.42 over the July 2022 futures. New crop soybeans basis levels range from $3.60-3.90 over the November 2022 futures.  

Ontario SRW wheat prices are in the $12.83 range with new crop for this year currently fluttering near $13.00 across the province.

On June 11, 2022, the US replacement price for corn was $10.07/bushel.  

Access to all these Ontario grain prices in the marketing section can be found at www.gfo.ca/marketing/daily-commodity-report.

What does it mean?
The GFO report stated: We continue to be in a massive global demand market where almost everything is in short supply. This is not only true of agricultural commodities, but also everything else. There is a myriad of reasons for this with the war being one of them, post Covid being another and so much more. As we move ahead, we need good crop growing weather to satisfy this market demand.

Will we get it? Nobody really knows the answer to that question as heat is building in the US Midwest now. Hot and dry can be a good thing especially at this time of year for growing and emerging crops, but if it persists it might turn into something else. With relatively low ending stocks of 1.4 billion bushels of corn and 280 million bushels of soybeans, our world does not have much margin of error in 2022. We need Mother Nature to play nice.

The June WASDE report (World Agricultural Supply and Demand Estimates, a monthly report from the US Department of Agriculture) continued to shed light on what is happening even though actual planted acres and quarterly stocks at the end of the month will be much more important to decipher. In the June report, the USDA increased Ukrainian corn production to 25 million metric tons but kept their exports unchanged as that is such a fluid situation.

It is difficult to know what grain futures contracts will do in such a bullish market situation. In fact, it should go up even more, but will it? Of course, nobody can answer that question but keep in mind the bullish nature and the unusual times we are in. Inflation is at 40-year highs in the US. Gasoline prices are leading the way and it’s very difficult to know how this will all settle out. These consumer markets are having a big effect on agricultural commodity prices.

Corn
Crop weather coming up will surely affect corn in the field at this stage. Heat is moving into the American Midwest in mid-June, and this is likely to start off as very beneficial. However, if it lasts into July traders will surely become nervous.

The market needs all the corn it can get and 1.4 billion bushel ending stocks will be severely impacted this year if there is a weather issue.

Keep in mind that the ethanol processors are making money and continue to represent a strong demand for corn. This is playing out both in the futures market as well as the cash market. With gasoline prices at all-time highs the incentive to blend will likely continue in 2022 and 2023. This will only have the effect of increasing demand for corn.

The December 2022 corn futures contract is currently priced 4.25 cents below the March contract which indicates and more neutral position for new crop corn. The old crop spread is extremely bullish. Seasonally, we know that corn prices tend to peak in early June and bottom out in early October. The nearby July contract is currently in the 90th percentile of the past five-year price distribution range.

Soybeans
The June 30, 2022, USDA acreage report will surely shed some light on how many soybeans did get planted this past spring. Pair it with weather issues in several areas of the US, and this might mean more soybeans than we expected. That would be saying something because we were looking at record acreage figures. As it is, over the last few weeks soybeans have been the leader of the agricultural commodity complex.

It is no secret that the hot vegetable oil market continues to boost the soybean oil market and soybean prices. Every day, there are news items about the price of oil and the price of gasoline. As it is the price of oil is affecting these vegetable markets which continues to effect soybeans. Looking ahead, it is almost hard to envision in 2022 when this market will cool off. Most countries don’t have any reserves and this hand-to-mouth characteristic impacting soybean demand is likely to continue.

The November 2022 soybean contract is currently priced 2-cents below the January 2023 contract which is considered a neutral position. However, the old crop spread of July/August is extremely bullish and November-March is also very bullish. Seasonally, we know that soybeans tend to peak in early July and bottom in early October. The nearby July contract is currently in the 96th percentile of the past five-year price distribution range.

Wheat
Wheat supplies are tight largely because of the Ukraine situation, but also because of declining wheat ratings around the world. In places like France, Germany, and India, the crop has deteriorated. India has also banned the export of wheat and sugar, an indication of the tight and nervous supply situation around the world. The trial balloons being floated out of Russia regarding a shipping corridor for Ukrainian grain is also impacting the daily price trade in wheat.

All of this is impacting the Ontario wheat marketplace with frenetic price changes over the last month. It is also likely to continue especially when Ontario has a short crop of wheat. For instance, $15 week was available last month, and $13 wheat is available off the combine today. That price is still $5 higher than last year and shows you the significance of the change in this market. If anybody knows what’s happens next, they need to stand up and say so because this market has been extremely volatile and surprising.

The Bottom Line
The Canadian dollar should be a star in this world where commodity demand is on steroids. However, it lost almost one percent of its value on June 10th finishing at .7827 US. Before that, it had shown signs of clearing the 80 cent US level on June 8, 2022. Keep in mind that the flight to a safe haven is still very real in this world where a major war is going on in Europe. The American dollar is still king and that is one reason why the Canadian dollar went down in the week ending June 10, 2022. The Bank of Canada has also been raising interest rates which should be bullish for the Canadian dollar. However, we have not seen it manifested in the Canadian loonie hitting $0.80 and putting a trajectory toward 90 under this white-hot situation.

As it is, the low Canadian dollar, and the very high corn wheat and soybean futures prices are providing big opportunity for Ontario cash grain prices.

With these high prices comes high volatility and Ontario farmers should not expect anything less as we go throughout the months of 2022 and go into 2023.

There are still many shoes to drop in the Ukraine-Russia situation, along with the inflationary spiral we find ourselves in. The world needs a lot of grain this year but at this stage we are still not sure whether it’s on the way. Price levels and weather will help determine that.

There are many things in play outside of the current economic fracture caused by the Russia invasion of Ukraine. China is continuing to buy agricultural commodities at a time when it is still fighting with Covid lockdowns. At the same time, African countries are lobbying worldwide to bring some sanity back to the food distribution situation. As it is, northern Africa depends mainly on Ukrainian and Russian grain. Clearly, that is at risk and the Russians are implying any grain corridor out of the Black Sea will depend on an easing of sanctions against Russia. These geopolitical factors are weighing on the fundamentals of the grain market. It is very likely this becomes more complex as 2022 progresses.

The challenge for Ontario grain farmers is to keep it all together.

There are many factors to consider.

Keep in mind the next USDA report on June 30, 2022, is one of the major ones that will reset US crop acres and give us a picture of where the quarterly stocks are.

Typically, around the July 4 weekend, we can reach market highs. However, we know that 2022 is a different year. Old crop soybeans over $22 and corn over $9 don’t lie.  

These are prices that dreams were made of only 18 months ago, but our world has changed.  

Looking forward, daily market intelligence will remain key with many marketing opportunities ahead.

Grain Farmers of Ontario is the province's largest commodity organization, representing Ontario's 28000 barley, corn, oat, soybean and wheat farmers. www. gfo.ca.


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