Grain Prices: Don’t Get Crossways with the Trend

It is another week and I find myself still chasing soybeans.  I’m about 2/3 finished but the rest have been two green for me to successfully get those beans in the bin.  The weather has turned colder in southwestern Ontario with a little bit of moisture, but consistent with this year the forecast for rain turned out to be much less. It was a very arid summer, and it certainly is a very dry fall so far.

In Ontario and Quebec, we don’t have a real good way of estimating how good the crop is in the field. I always like to say that we just guess, and my guess is just about as good as anybody else’s.  Statistics Canada always puts out a number and usually it doesn’t add up quite to what I think it should be. However, it’s pretty clear this year that most of Ontario and Quebec was not as dry as southwestern Ontario where your loyal scribe calls home.  Needless to say, it seems like slightly dry is always better for crops than slightly wet. I will hope for better weather next year.

In the United States they do things differently and USDA sets out a plethora of statistics on a set schedule on a weekly, monthly and annual basis. As the world’s biggest agricultural producer, it’s in its best interest to be able to count the number of beans in the field. This past week we had the latest WASDE report issued by the USDA. With uneven weather throughout the United States this past growing season, the algorithms were all dialed in to sink or swim based on the numbers at the USDA came out with. At the end of the day, the USDA reduced US corn yield to 171.9 bushels per acre down .6 bushels per acre from their September report. On the soybean side of the ledger the USDA reduced US domestic soybean yield by .7 bushels per acre to 49.8 bushels per acre.

At first glance you would think that would send the market popping a bit, but it just reaffirmed that USDA report days are a bit of the relic of the past. Nowadays, our trading algorithms have all kinds of possibility dialed into them and we let the software do the trading. Having said that, these algorithms do trade violently when the USDA reports differ wildly from the expectations programmed into the software.  What I took back from the USDA report is that dry weather has tempered US yield in late summer and early fall. As we look ahead, the world wants all the grain that we can produce and will heavily be dependent on South America in 2023.

In the October 12th report the USDA dropped both corn export demand and ethanol demand. In fact, the export pace for US corn presently has sales down 50% from a year ago. That is pretty significant especially when you consider that the United States is the world’s leading supplier. At the same time ethanol demand was down by 50 million bushels. This was offset to some extent by an increase in feed and residual demand but had put the ending stocks number at 1.172 billion bushels which was a decline of 37 million bushels from last month. It is a bit of a mixed bag. It would be so nice to have demand skyrocketing at these present price levels.

Keep in mind it’s important to realize what those price levels are. December corn close today at $6.97 a bushel which is in the stratosphere compared to prices of recent history.  At one time in the pre-Ukraine Russia war period, we would be talking about the cure for higher prices are high prices and that we could never sustain $7 corn especially at harvest time.  However, it is what it is, corn is being sold off the combine today in southwestern Ontario for over $8.80 a bushel. That’s hardly ever been seen before.

The USDA’s reduction in soybean yield in the United States was a bit of a surprise to the market. As I’ve said many times, soybeans are always the great liars, but in the end always tell the truth. It seemed like we as we went through summer that the dry weather was too extreme in the regions where it was apparent. That was certainly the case in southwestern Ontario.  In fact, here there are huge variations in soybean yield on rural concessions only kilometres apart based on rain showers in August and July. That’s how fickle it could be. However, it’s clear, that the USDA October numbers for soybeans are showing a crop not as good as once expected and might even get smaller.

What isn’t expected to get smaller will be the expected soybean crop in Brazil in 2023. The USDA put out a projection of 152 MMT in their October 12th report. This is mindboggling, the almost exponential increase in Brazilian production on an annual basis. I can remember when Brazil was not a player in world soybean production, but I can also remember a time not too long ago where a big Brazilian crop was about 88 MMT.  We are now close to double that and who’s to say in five years we won’t be looking at a 200 MMT domestic soybean crop in Brazil! That huge pent-up supply of Brazilian soybeans looms in the future as a counterweight to all the problems that oilseed markets might have in the next few months.

Keep in mind that these are unprecedented times on our farms and within this world. We have a major grain growing area under threat of destruction because of war. Russian missiles are raining down every day in Ukraine. There is the threat of nuclear proliferation and tumult.  Some leaders of third world countries are sharing their concerns publicly about their own food security. It begs the question, will the prices that we are experiencing now at harvest time which generally reflect seasonal lows be much higher in 2023?  You know my answer. However, don’t get crossways with the trend in world geopolitics. Our grain marketing might be an exercise in risk management at the best of times, but in 2022 in 2023 there is a huge supply of risk, much bigger than we are used to. Our agricultural commodity prices will lay in the balance.  We might not have seen anything yet.