Disruption and Fracture in Grain Markets: Hold on Tight

Almost three years ago your loyal scribe was the guest speaker at the Prince Edward Island Grains and Oilseeds Outlook Conference in Summerside PEI, where I was talking about eastern Canadian grain markets. As usual, wherever I go I like to focus in on local cash markets.  Looking at the Atlantic Canada markets is always fascinating for me.  Little did I know as I left the stage in Summerside that it would be another almost three years before I would be asked again to speak to a large group about grain markets.  Simply put, COVID-19 changed the world and it’s been a long time getting back to normal.

Oh, how the world has changed. When I speak in London Ontario next month on our grain market world it will be with the following title: “Disruption and Fracture in Grain Markets, the Uneven Road into 2023 and Beyond”.   Who knew, in the snowy world of Summerside in March of 2020, our grain economy would change so much.

In the meantime, this past week the USDA chimed in with their latest WASDE report.  In the November 9th report the USDA raised production of both corn and soybeans. The USDA raised corn production up to 172.3 bushels per acre boosting production to 13.93 billion bushels this year. At the same time the USDA raised soybean production 33 million bushels to 4.346 billion bushels. This new production was partly based on a boosted U.S. National yield of 50.2 bushels per acre.  These are not record yields, but it’s still a very handsome crop in a year when there was some uneven weather. It is obvious that many production fields didn’t have the same problems that I did. In fact, Illinois State corn yield average was 215 bushels per acre.

If I was able to present those figures at the Summerside PEI conference three years ago, I’m sure that people there would be expecting much lower prices.  However, December corn today is $6.53 a bushel and November soybeans are $14.30.  These futures prices are down from where they were just a few weeks ago but they are still at healthy levels. Where have the days gone where we wondered if December corn would ever reach $4.50 a bushel?

I have wondered about that many times.  For instance, the December corn 2023 contract closed today at $6.07 a bushel, still in a bit of a stratosphere but closing almost a dollar less than the targeted $7 level we’ve seen several times this past year.  What it does mean is that the world has changed so much in November of 2022 from those days in March of 2020.  The grain pricing calculus has changed and as we look ahead, we need to determine whether it stays that way or whether we go back to that different time when we always hope for $4.50 corn off in the distance.

It’s definitely difficult to project and it’s complicated in Ontario and Quebec with a Canadian dollar fluttering around the 73 cent level US. Our cash prices are very high from historical perspectives and it’s completely obvious why some people are selling grain. They have been very few times they’ve seen prices this high at harvest time.  As we look ahead, with US Federal Reserve and the Bank of Canada raising interest rates it’s hard to imagine our Canadian dollar getting stronger in the short term. That should mean more of the same within our cash markets.

Grain futures markets will be somewhat more difficult to determine, but keep in mind these markets are there to help us gauge what grain prices might be in the future. What we have seen since I stepped off the stage in Summerside PEI has been a huge fracture and disruption from what I knew when I stepped onto the stage that day. It a nutshell, we had the worldwide pandemic COVID-19 topped off by a Russian invasion of Ukraine on February 24th, 2021.  When you put this all together our grain calculus has had a injection of testosterone more than ever could have been imagined that day in Summerside.

During this time over the last almost three years we’ve had a lot of gnashing of teeth. Higher prices encouraged production but there have been problems with production whether that’s been in South America, Europe, Australia or here in North America. We simply could not catch up with what the world was demanding until maybe now, as we look into 2023. For instance, our Brazilian friends are looking at producing 152 MMT of soybeans this coming year, which if it comes to fruition will be a mindboggling record crop. It certainly will have the potential to temper down soybean prices going forward. The same could be said if all the production areas of the world that I have mentioned get back to more normal production giving us the agricultural economic scenario where we constantly over produce. So far as we look into 2023, we are not there yet but there are signs that if everything goes well, we might get there again.

The kicker of course is the powder keg in Ukraine and Russia, and I will let you draw your own conclusions with that. You know my position; this is war and war markets are unpredictable and that will continue into 2023.  In other words, there is lots of potential for more disruption and fracturing of our grain markets, which may change our grain pricing calculus once again.

For farmers like myself it feels a bit like riding a crazed bucking bronco.  You feel like you’d like to jump off, but you know the only option is to keep hanging on.  That will be 2023 for us. You say risk management? Yes, but hang on tight.