All eyes on today’s USDA supply and demand report

An updated acreage survey will shed new light on how many acres did not get planted

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Precipitation has been quite variable across the Ontario cropping region throughout the month of July. Western counties received average precipitation but a large portion of the central and northern counties have received less than 40 per cent of normal precipitation. Eastern counties have received average to slightly below-average rainfall. Early yield estimates for Ontario corn and soybeans are below the five-year average.

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Ontario old-crop corn stocks are historically tight which has kept the market well supported, especially for ethanol production. New-crop corn prices have also incorporated a risk premium due to the uncertainty in production. Soybean prices have come under pressure due to slower offshore movement. Secondly, western Canadian soybeans have traded into Ontario saturating nearby domestic demand. Wheat prices have held up due to the year-over-year decline in production and strong domestic feed prices.

The USDA will release updated supply and demand numbers August 12. The National Agricultural Statistics Service (NASS) will re-survey 14 states and the USDA will use these acreage numbers. This report will also provide the first yield survey of the 2019 corn and soybean crops. There are some regions in the Midwest that have received less than 50 per cent of normal precipitation over the past 30 days.

The U.S. China trade talks are scheduled to resume this week. Media reports suggest there may be groundwork for a specific agreement whereby China buys U.S. agriculture products in exchange for U.S. companies selling parts to Huawei. Last week, Bloomberg reported that China gave approval to five companies to purchase up to three million tonnes of U.S. beans free of the 25 per cent retaliatory tariff. China continues to shun Canadian soybeans and ramp up pressure on Canada due to the arrest of Hauwei CFO Meng Wanzhou last December. Companies are also hesitant to make sales to China given the political risk of non-tariff barriers.

Quick look

Soybeans: Prices have come under pressure due to slower export movement.
Corn: Tight stocks continue to support the market.
Wheat: Prices are being supported by stronger corn prices and a year-over-year decline in production.

Soybeans

Ontario old-crop soybean prices have been hovering in the range of $11 per bushel to $11.25 per bushel while new crop prices are quoted from $10.90 per bushel to $11.15 per bushel. At this stage of the season, we’re rating the Ontario crop 38 per cent good to excellent, 40 per cent fair and 22 per cent poor to very poor. Ontario soybean production has potential to reach 3.6 million tonnes, down from our earlier estimate of four million tonnes and down from the 2018 output of 4.2 million tonnes. The crop is seven to 10 days behind normal development as of July 30.

There is a fair amount of uncertainty in regards to the U.S. soybean crop. We’ll have a better idea of seeded and harvested acreage on August 12; however, the yield will be determined over the next couple months. Traders’ pre-report production estimates range from 96 million tonnes to 104 million tonnes, which compares to the July USDA number of 104.6 million tonnes. The critical pod-setting stage will occur in mid August and the market will be very sensitive to weather. Given the lower production, U.S. fundamentals are not bearish from current levels.

U.S. soybeans out of the Pacific Northwest are competitive with Argentine and Brazilian origin into Southeast Asia destinations. Barge movement is improving on the Mississippi as water levels are now below flood stage. U.S. beans out of the Gulf will be more competitive on the world market later in fall. Demand for U.S. soybeans is improving, not getting worse.

We’ve advised Ontario producers to be 100 per cent sold on their 2018 production and 20 per cent to 30 per cent sold on new crop. We’ll define our marketing strategy once the U.S. production is more certain. The market has potential to be very volatile over the next month.

Corn

Ontario corn conditions are quite variable. Corn that was seeded during mid-May is starting to tassel; however, corn that was seeded in the last half of June is only in the eight- to 10-leaf stage as of July 30. We’re rating the crop 45 per cent good to excellent, 33 per cent fair and 22 per cent poor to very poor. Given the current crop ratings, we’re projecting a crop size of 8.3 million tonnes, down from the 2018 output of 8.8 million tonnes. On average, the crop is 14 to 17 days behind normal development. Approximately 50 per cent of the Ontario corn crop is vulnerable to severe frost.

The Ontario corn market is contending with very unique fundamentals. Old-crop stocks will drop to historically low levels due to the year-over-year increase in exports. Secondly, Ontario production is coming in lower than anticipated with a large percentage of the crop susceptible to frost. The Ontario market is functioning to attract U.S. imports but this is more difficult due to the high prices in the Northern states. This should keep the Ontario corn market firm moving into the harvest period.

We have a neutral outlook for the U.S. corn market for the time being. Traders are expecting a year-over-year decline in production. On the flip side, export values out of the Gulf are at a premium to Argentina and Brazilian origin, which has tempered offshore movement. Secondly, hard red winter wheat is moving into feed channels in the Southern Plains. There are lower supplies but demand is also very sluggish.

Ontario corn prices for ethanol production are averaging $6.60 per bushel and new crop prices are around $6.75 per bushel. Elevator bids are also quite firm with old crop prices from $6 per bushel to $6.10 per bushel while new crop prices are averaging $5.50 per bushel. In previous issues, we’ve advised producers to finish up old crop sales and be 20 per cent sold on new crop. We’ll be patient to make additional recommendations. Export and domestic demand will improve later in fall. Farmers will also be more comfortable selling when their production and quality is known. We don’t expect much slippage in the Ontario market.

Wheat

The Ontario winter wheat harvest was approximately 35 per cent complete as of July 30. Ontario winter wheat production is estimated at 1.5 million tonnes, down from 2.1 million tonnes last year. Soft red winter wheat prices for immediate delivery are in the range of $6.55 per bushel to $6.70 per bushel. Values are being held up due to the year-over-year decline in milling wheat production and strong domestic corn and feed grain prices. Secondly, in a normal year, Ontario soft red winter wheat trades into the U.S. market. For the 2019-20 crop year, the Ontario wheat market needs to ration demand by trading at a premium to U.S. values. The exportable surplus is minimal because of the lower production.

Analysts have made downward adjustments to Russian and European production estimates. Russian winter wheat yields are coming in lower than anticipated and recent rains have downgraded quality in the Central and Volga region. The Ukraine and Russian winter wheat harvests are approximately 70 per cent complete. Europe has experienced extreme heat over the past month curbing yield projections in Northern France and Germany. The French winter wheat harvest was 65 per cent complete as of July 28. Farmers in the U.S. combined 75 per cent winter wheat as of July 28. U.S. wheat stocks will drop to six-year lows due to an increase in feed usage. Supplies are not growing but the fundamentals are slightly tighter than earlier in July.

This week, we’re advising producers to make their first sale of the 2019-20 crop year and sell 20 per cent of their production. The main factor holding up wheat prices is the strong feed grains complex. Once the corn harvest begins in North America, wheat and corn prices will grind lower.

About the author

Markets Analyst

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

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