This Grain Market Is Asking for More of Everything

Last week I was talking about supply concerns and how we shouldn’t take that for granted. However, every morning I usually get up early and make myself a cup of coffee. So, when I saw that the March coffee futures contract had climbed to a high of $2.59 a pound its highest level since September of 2011, I got wondering. It seems like we cannot take anything for granted. With Canadians driving up for coffee every morning, you’ve got to wonder what might happen if we ever ran out? Caffeine is a strong drug.

This happened to be the day where the USDA gave their latest monthly estimates of how short some of these commodities might be. The USDA released their February WASDE report, which showed few surprises. There was no change from the numbers released last month with only minor tweaks across the board. The USDA confirmed that the crop in South America is getting smaller. They reduced the Brazilian soybean estimate down 5 million metric tonnes to 134 million metric tons. In addition to that they reduced the Argentinean soybean crop 1.5 million metric tons to 45 million metric tons.

The February USDA report is usually a bit of the yawner because it finds itself between the bigger January and March reports. This time around it was about the same although South American numbers dropping reflected what the market has already absorbed. That’s one reason we had a big market reaction to the upside on a day when the US report didn’t really say much at all.

Prices are very high historically speaking in Ontario. Old crop corn is $7.75 at the elevator and new crop is about $7. On the soybean side of the ledger old crop soybeans have been crowding $20 currently at $19.85 for elevator bids, new crop bids are approximately $17.43 a bushel. These prices are very high from an Ontario perspective, but of course are not record highs on the futures market. We still have a long way to go to break through the old soybean high of $17.89 and corn of $8.49.

The question is what happens to market prices in Ontario if 2022 is the year where we break those 2012 highs? You must get close to those values in order to break them and 2022 might be that year. On the other hand, it may not. We’ve had some production problems in South America and that has led to the big price rises that we have seen. It’s been a bit unusual because South America has been bulletproof when it came to production over the last several years. To break the 2012 high in the futures market we will need a drought in North America this summer. That would be rare, something that doesn’t happen very often.

Does it mean we should take risk off the table? It surely does. I have no idea if prices are going to go higher, I just know that we’ve had quite a run and risk management never grows old. Even with farmers budgeting 50% increases generally in fertilizer prices this spring, there is still profit to be had. Supply is not going to be taken for granted in 2022, just like it wasn’t last year. To boost world supplies we need quite a bit of production success around the world. It just so happens that right now it’s not that time.

It makes you wonder what the story is as we look ahead? It’s already February and January didn’t really do us any favours. I see the way ahead to be about several things, one of them being COVID-19. We need to get past that and to be able to live with it in a manner where humankind wins. I’ll leave that up to the public health officials. Of course, last week I talked about the supply constraints caused by COVID. This is part of the ongoing narrative that will affect our farms the rest of the way in 2022.

In addition to that we have very high corn soybean and wheat prices which may be further ginned up by some of the geopolitical machinations that are going on in this world. I find the Ukraine Russia thing to be very troubling which will only add to the economy of uncertainty in the grain market. Then there will surely be something unusual which we refer to as the proverbial Black Swan. You never know when they will show up.

Soon we’ll be hearing all kinds of estimates for planting acres this coming spring in the United States. It’s hard to say exactly what they will be because we need more of everything whether that be cotton or hay or corn and soybeans. Do we have 94 or 95 or 96 million acres of corn in 2022 combined with 90 million acres of soybeans? Or does it matter? Well, I’d argue in 2022 it matters more than many times in the past. This market is asking for more of everything and it’s unlikely going to get it. It surely will make for a volatile and rough ride heading the later vestiges of 2022.