Ontario soybean production expected to rise

Better margins than other crops should bump up acreage

Soybean prices remain strong due to low stocks.

Over the past 30 days, southern Ontario received 85 to 115 per cent of normal precipitation, while temperatures were 4 to 5 C above normal.

Winter wheat development is about seven to 10 days ahead of normal with the earlier seeded winter wheat moving into the reproductive growth stage.

Quick look

  • Soybeans: Ontario crush margins are strong.
  • Corn: Corn from Ontario continues to move steadily to Europe.
  • Wheat: Demand for old crop wheat continues strong late in the crop year.

There was little winter kill this year. Most row crops should be planted during the first half of May, which is in line with the five-year average.

At the time of writing, Ontario corn and soybean prices were at or near 52-week highs. The markets are functioning to attract farmer selling through the main planting period. Uncertainty regarding upcoming production has been supportive for Ontario new-crop prices.

As of April 18, farmers in the United States have planted three per cent of the soybeans, compared to two per cent last year at this time, and the five-year average of two per cent.

About eight per cent of U.S. corn was planted compared to six per cent last year and the five-year average of eight per cent.

In Argentina, farmers have harvested about four per cent of the soybean crop and 14 per cent of the corn.

Brazilian farmers have harvested about 85 per cent of the soybean crop, while the first-crop corn harvest is basically finished. Brazilian farmers have finished planting the second-crop corn known as the safrinha production.

The major producing states of Parana and Mato Grosso are experiencing yield drag due to drier conditions. Export demand for North American corn and soybeans has slowed with the ongoing harvests in Brazil and Argentina.

The Canadian dollar is projected to percolate higher over the next couple months. The Bank of Canada is expected to taper its bond-buying program, which will result in higher bond yields. North American equity markets are trading near 52-week highs. Lumber, crude oil, copper, metals, grains and oilseeds are experiencing higher prices and a sharp yearover-year increase in exports. All these factors are bullish for the resource-based currency.

Soybeans

Ontario soybean markets remain firm due to steady domestic demand. Export movement is dead quiet. Canadian crop year-to-date exports for the week ending April 11 were 3.5 million tonnes, up from 2.4 million tonnes last year. There have been no vessel exports over the past two weeks.

Ontario crush margins have improved due to stronger product values.

U.S. soybeans just south of the border are premium to Ontario prices, therefore, we're not seeing imports to calm the upside.

The domestic market may have some breathing room in the short term. Farmer selling slows during the planting period. Limited selling pressure and firm domestic demand characterize the Ontario market structure.

We continue to project a minor year-over-year increase in Ontario soybean production. Favourable margins compared to other crops will result in larger acreage. We're looking for production to reach 4.1 to 4.3 million tonnes, up from the 2019 output of 3.9 million tonnes.

Soybean futures are in a precarious situation. At the time of writing this article, Brazilian soybeans were at 30 to 40 cents per bushel discount to U.S. origin out of the Gulf of Mexico. The U.S. market is functioning to ration demand through higher prices; however, similar to Ontario, the domestic crush margins are encouraging the weekly crush pace. U.S. soybean stocks will drop to bin bottom levels but steady domestic demand will limit the downside.

What to do: In conclusion, we've advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. We're not anxious to add onto new-crop sales at this time. For new crop, the futures market is incorporating a risk premium due to the uncertainty in production. Stocks are snug so the market cannot afford a crop problem.

Corn

Ontario corn prices continue to percolate higher due to steady export and domestic demand. Canadian crop year-to-date corn exports for the week ending April 11 were 659,900 tonnes, up from 12,500 tonnes last year.

We continue to see steady offshore movement to Europe. We may see U.S. demand absorb Ontario corn later in summer. Corn prices just south of the border appear to be premium to Ontario values.

Ontario cattle-on-feed inventories tend to peak in April and May; therefore, domestic feed demand is at a seasonal high. This stronger demand comes when farmers are busy planting, so selling pressure tends to slow in the first half of May.

Argentine corn is most competitive on the world market, which is slowing fresh export business from the U.S.

In central Brazil, corn is priced at around US$7.35 per bushel so there is no possible way of exports until safrinha supplies are available. The forecast calls for limited precipitation in Parana and Mato Grosso over the next month. Keep in mind the safrinha corn crop will move through the main pollination stage when temperatures are at seasonal highs.

We are hearing of yield drag and we expect production estimates will be lowered in upcoming months. Weather forecast for the U.S. Midwest is a mixed bag while the northern Plains will remain dry. The tight old-crop fundamentals along with uncertainty in new-crop production will keep the futures well supported.

There is a strong seasonal tendency for the corn market to make highs in late May or early June. Therefore, we don't expect much downside in prices in the short term. In fact, we're looking for corn futures to move another 50 cents per bushel higher over the next month. The U.S. Department of Agriculture had corn at 91.1 million acres on its March 31 report. We believe the market wants to secure about 93 million acres. It has to do this in short order.

What to do: We've advised producers to be 80 per cent sold on old crop and 20 per cent sold on new crop. Be patient to make further sales. We'll sell our final 20 per cent increment from 2020 once the crop is more certain.

Wheat

Ontario and world wheat prices are experiencing a counterseasonal trend during April for three main reasons.

First, wheat is replacing corn or coarse grains in feed rations. This is occurring in the U.S. southern Plains, Brazil, Europe, Western Canada and Southeast Asia.

Secondly, we're looking for a year-over-year increase in winter wheat production in the U.S, Russia, Ukraine and Europe. However, Europe has experienced below normal temperatures in the first half of April. The spring wheat regions of Western Canada and North Dakota are on the drier side. Colder temperatures have also affected the crop in Kansas. Production may not be as large as earlier anticipated.

Finally, world cash values have climbed recently. Demand for old crop is still firm late in the crop year. Remember, the world is no longer comfortable with past stocks of cereal grains. We've seen a resurgence of the COVID pandemic in Canada and Europe. This puts the world on edge because we've seen how quickly shelves can empty on the slightest disruption in logistics.

On top of the COVID pandemic, there are political military issues along the Ukraine and Russian border. We also have to mention the tensions in the South China Sea and Taiwan. One can see why the wheat market gets nervous in the current environment.

What to do: We've advised Ontario farmers to be 80 per cent sold on their 2020 production. We're planning to sell the final 20 per cent increment in May. For new crop, we'll be patient on sales because quality and yields are too uncertain at this stage of the growing season.

About the author

Markets Analyst

Jerry Klassen

Jerry Klassen is the manager of Canadian operations for Swiss-based grain trading house GAP SA Grains & Products.

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