Yield prospects in the northern and eastern regions of Ontario of been tempered due to below-normal precipitation. However, the regions west and south of Toronto are developing under favourable conditions. Ontario corn is moving through the critical pollination period while the soybean crop is entering the important pod-setting stage. The Ontario winter wheat harvest is 50 per cent complete as of July 18. Yield and quality reports are exceeding expectations. The grain and oilseed markets continue to digest optimal growing conditions across the U.S. Midwest. Chinese tariffs on U.S. soybeans continue to weigh on the oilseed complex. The winter wheat markets are balancing Northern Hemisphere harvest pressure with lower production estimates from Russia, Ukraine and Europe. Above-average yields are expected for the U.S. and Canadian spring wheat crops. The Chinese yuan has been trending lower since mid-April while the U.S. greenback continues to trade near eight-month highs. The Canadian dollar also remains in a downward trend despite stronger crude oil prices.
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Soybeans
The soybean futures market has maintained a downward trend since late May for two main reasons. Traders are factoring in above-trend yields due to optimal growing conditions across the Midwest. U.S. soybean production is expected to reach 126 million tonnes, up from the current USDA estimate of 117 million tonnes and up from the 2017 crop size of 119 million tonnes. Secondly, U.S. exports for 2018-19 are uncertain. The USDA has its projection marginally below year-ago levels due to lower Chinese demand but this could change later in the crop year. During the fall period, the North American soybean market will be contending with burdensome supplies and lower demand for the 2018-19 crop year.
Ontario soybean production is expected to finish near 3.9 million tonnes, up from the 2017 crop of 3.8 million tonnes and above the five-year average output of 3.6 million tonnes. We’re still using five-year average yields in our projection. Average precipitation and normal temperatures are in the seven- to 10-day forecast, which should bode well for yield development.
In South America, Brazil continues to struggle with a logistical hangover due to a truckers’ strike earlier in spring. In any case, China stocked up on U.S. soybeans prior to the tariffs coming into effect on July 6 so we’re not hearing of any major set-backs in China. Looking forward, the Chinese tariffs will artificially enhance soybean production in South America while lowering soybean acreage in the U.S. next spring
Earlier in May, we advised Ontario farmers to forward sell 25 per cent to 30 per cent of their 2018 production. Next winter, China will be in dire need of soybeans from all non-U.S. producing countries. We expect Ontario soybeans to trade at a premium to U.S. soybeans when Chinese demand surfaces for Canadian origin. There is potential for the basis to strengthen throughout the winter and make a seasonal high in January and February just prior to the South American harvest. Currently, prices for July are hovering around $11 while elevator bids are hovering around $11.05. Prices have held up fairly well despite the slide in the futures market. If you’re still holding on to old crop soybeans, the small carry in the cash market is telling farmers not to store old crop soybeans into new crop positions.
Corn
The U.S. corn crop is expected to finish in the range of 368 million tonnes to 370 million tonnes, compared to the current USDA estimate of 361 million tonnes and last year’s output of 371 million tonnes. On this month’s WASDE report, the USDA was still using a trend-type yield. On the August report, we’ll see the first estimate for 2018 yields although the USDA is usually conservative on its first survey. The U.S. corn crop was rated 72 per cent good to excellent as of Sunday July 15, down from the previous weeks rating of 75 per cent, but up from last year’s level of 64 per cent.
China is not a significant importer of U.S. corn but traders are concerned about the slow-going NAFTA negotiations. Mexico is the largest importer of U.S. corn. The USDA is forecasting a marginal year-over-year decline in U.S. corn exports; however, given the tighter world corn situation, we believe U.S. exports could be five to as much as seven million tonnes above year-ago levels. Therefore, the increase in U.S. production would be easily absorbed by the exports to satisfy world demand. The U.S. corn carry-out could still come in around 40 million tonnes, down from the 2018-19 carry-out of 51 million tonnes and down from the five-year average ending stocks of 45 million tonnes. Corn could be the sleeper crop that suddenly wakes up in December.
We mentioned in the previous issue that South American farmers would increase soybean acres at the expense of corn. The USDA’s preliminary estimate for the 2018-19 world corn carry-out is around 152 million tonnes, down from the five-year average ending stocks of 202 million tonnes. Coarse grain stocks will be relatively tight in the upcoming crop year, despite the large U.S. crop. We want to draw attention that European crop estimates could also be revised lower due to adverse growing conditions over the past month. We also don’t believe the USDA has factored in the lower corn acres in South America this fall.
Given the current crop conditions, we’ve lowered our crop projection for the Ontario corn crop. We’re now estimating Ontario corn production to finish near 8.1 million tonnes, down from our earlier projection of 8.7 million tonnes and also down from year-ago output of 8.7 million tonnes. The cash corn market in Ontario appears to be incorporating a risk premium due to the uncertainty in production. While U.S. corn prices have deteriorated due to favourable yield prospects, Ontario corn prices are relatively unchanged from late June. The weaker Canadian dollar has also hindered U.S. corn imports.
In previous issues, we advised producers not to store old-crop corn into new crop positions. We’re still recommending that producers sell 15 per cent to 20 per cent of new-crop corn. During harvest, the U.S. corn crop will function to encourage demand through lower prices. The Ontario market will also experience harvest pressure, despite the lower crop prospects. We ‘re expecting the market to percolate higher later in winter due to the tighter world stocks. The market will also be very sensitive to South American production because the world cannot afford a crop problem in Brazil or Argentina.
Wheat
The U.S. winter wheat harvest was 74 per cent complete as of July 15, up from the previous week’s progress of 64 per cent. Yields have come in better than expected despite the drier conditions earlier March and April. We want to remind producers that U.S. farmers sell about 50 per cent of their winter wheat in the summer months, which causes the basis to deteriorate and the futures market to come under pressure.
The world wheat market appears to have stabilized for the time being now that the U.S. harvest is in the final stages and production prospects have been lowered in Russia, Ukraine and Europe. In Russia, drier conditions have tempered yield prospects in the Southern and Volga districts. The crop is vulnerable to quality issues with adverse rains in the forecast. There is also uncertainty in regards to the Russia’s spring wheat crop, which was seeded later than normal. In Europe, winter wheat production has also been revised lower due to drier conditions in Germany, France, Belgium, Denmark, and the U.K. Australia needs timely rains over the next month. Otherwise we’ll see serious decreases in production estimates. The feed grains market in Australia is quite strong enhancing domestic wheat prices. Argentinian farmers have seeded about 90 per cent of the wheat crop and conditions are quite good.
In Ontario, the winter wheat crop is expected to finish around 2.1 million tonnes, down from the 2017 crop of 2.2 million tonnes. Last fall, the winter wheat crop was seeded in two intervals. Approximately 50 per cent of the crop was seeded earlier and then the other half later in fall. Crop comments suggest that the earlier seeded crop is fairing quite well but yields are slightly lower on the later-seeded crop. However, even in the drier areas, winter wheat yields are exceeding expectations. Test weights and protein are quite good across the province so the quality is not an issue. The Ontario spring wheat crop is quite variable. There are pockets that have experienced drier conditions resulting in premature heading. We’re estimating the Ontario spring wheat crop at 110,000 tonnes down from the 2017 production of 114,000 tonnes.
Western Canadian spring wheat production is expected to finish near 24 million tonnes, up from the 2017 crop of 21.8 million tonnes. U.S. hard red spring production is expected to come in at 15.6 million tonnes, compared to 10.5 million tonnes last year. There is no shortage of spring wheat. Ontario hard red spring prices are slightly lower than hard red winter.
Despite the weaker futures markets, Ontario wheat prices are relatively unchanged from June. Earlier spring, we advised farmers to finish up old crop sales. Producers want to avoid selling during the summer months because the market usually makes the seasonal low in July and August. Our strategy will be to sell regular increments throughout the crop year once the harvest is completed. European, Russian and Australian crops are still uncertain which could cause the wheat market to rally later in fall.
