Steve Kell’s
Market Minute
The spring of 2023 has been a rough ride down for farmers watching grain prices and waiting for an opportunity to make sales.
Over the past few months we’ve seen something of the “perfect storm” for commodity prices brought on by big acreage intentions, excellent planting progress, and better than expected yields in the southern hemisphere. The question which this creates for grain producers is whether or not we might see a turn around on the market’s fortunes. Or whether we should be lowering our price expectations for this coming year’s crop? The answers to both of those questions are unfolding right now.
If you look at the total supply of grains produced worldwide and the global demand for those commodities, it seems like the price adjustment that we’ve seen is both rational and required. This is demonstrated extremely well in the corn production statistics.
In 2021, world corn production was more than 1.2-billion metre tonnes, and by the end of the 2021 / 2022 crop marketing year, the ending stocks were 308,150-million tonnes. Due to some drought issues in key production regions around the globe, 2022 worldwide corn production dropped to 1,150,200 tonnes, and with the somewhat limited supply, ending stocks tightened to 297,410 tonnes. At this point in the 2023 production year, the USDA is estimating 2023 global corn production at 1,219,630 million tonnes with 2023 / 2024 ending stocks projected at 312,900-million tonnes. It’s really interesting to note that the 2021 crop corn supply and demand numbers are almost identical to the 2023 corn supply and demand estimates, and therefore, if the supply and demand is essentially the same as it was two years ago, the prices will need to fluctuate in a similar range as they function to ration demand. The bottom line for farmers is that we’re in a 2021-type market, we should not have our sights set on 2022 type prices.
While it is academically really interesting to see how closely the USDA has tied its 2023 – 2024 crop projections to the values seen in 2021 / 2022, it’s equally important to note that those were only USDA May estimates. May is really early in the growing season for northern hemisphere corn, and the majority of the global corn production occurs north of the equator. I seem to recall a seed company rep saying that the yield potential of corn is 400 bushels per acre and that everything that happens to lower the yield potential of the crop happens after you open the seed bag. The 2023 corn crop has a lot of growing season ahead of it, so despite the fact that it was planting into good conditions fairly early, it can still get too wet or too dry. It could still be too hot or too cold, and we could still encounter pathogens like insects or disease. Yield potential can really only drop, and we need to be fully locked in on prices when the Chicago futures market starts to worry about one or more production issues.
Worldwide corn production for 2023 is currently estimated to be 1,218,630-million metric tonnes. (1.2 billion tonnes). By comparison, Ontario’s 2.1 million acres of corn will likely produce slightly under 10 million tonnes of corn, which makes Ontario’s entire crop equivalent to 8/100-million of the global supply. Please do not spend your summer driving around rural Ontario looking at corn fields and trying to estimate how much impact these crops are going to have on price. It’s not a good use of time.
Worldwide grain ending stocks are not particularly tight. The current USDA estimates for global wheat suggest that 264-million tonnes of the world’s 789-million tonne annual wheat production was still in storage at the end of the crop year, or about 34 % stocks-to-use ratio. That seems like a stunningly big portion of the wheat crop to have been carried from one crop year over into the next. If a farmer in Ontario who grew 1,000 tonnes of wheat still had 340 tonnes left in the bin when they arrived at the following year’s harvest it would look like a bad situation. However when you look at the global wheat market, between the northern and southern hemisphere and both winter wheats and spring wheats, it seems like somebody is in the midst of wheat harvest somewhere in the world essentially every day. When you aggregate together everything that is called “wheat” which is grown everywhere in the world, you lose a lot of the subtlety which makes up the individual wheat markets.
In terms of corn, 2021 / 2022s stocks-to-use ration was about 25.3 %. For the 2022 / 2023 crop year the stocks-to-use ratio actually grew a little to reach 26.3 %, and the current projections for 2023 / 2024 put us headed back down to 25.6 %. The global corn market is actually a very well-functioning machine. While it feels like having a quarter of a corn crop still in the bin when we reach harvest for the follow year seems like a lot of inventory, like the situation in wheat, we’re aggregating both the northern and southern hemishere’s harvest periods in these statistics. It’s also important to note that 25 % of a year is only 91 days. Saying that the world has 25 % of a corn crop left over seems like a lot of surplus inventory, but to say that the world only has 91 days left of grain in storage is a completely different headline. In fact if you frame it like that it might be the first time that CNN and FOX News would cover the same story.
Commodities markets in general are really just like an elaborate balance beam scale where we use price to balance out the relationship between supply and demand. ( if supplies are tight, then price has to rise up to a level where fewer people wish to buy it). This is remarkably rational, so if we’re trying to figure out how a market is going to unfold, find the last time that we found ourselves in a similar situation. Granted, there are a few subtle difference in interest rates and money supply over the past two years, but basically we’ve got a very close comparable between the 2023 corn market and the 2021.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
