Corn, soybean yields still above last year averages, despite harvest delay

Weak Canadian dollar will continue into 2024, supporting grain and oilseed prices

Reading Time: 6 minutes

Published: November 9, 2023

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Next spring, U.S. corn acres are expected to decline by two million acres compared to the 2022 area.

As of Oct. 31, we estimate the Ontario soybean harvest was 65 per cent complete and corn progress stood at 45 per cent. Intermittent rains and cooler temperatures delayed harvest progress. Weather forecasts call for cooler temperatures and additional periods of rain or snow.

Farmers have been planting winter wheat in some locations but it appears that winter wheat acres will be down from year-ago levels.

Yield reports continue to confirm our corn and soybean production forecasts. The bulk of the corn should have limited DON levels. Ontario corn, soybean and wheat prices have consolidated over the past month.

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Quick look
Soybeans: U.S. farmer selling will slow over the next month, providing an opportunity for Ontario farmers to increase sales.
Corn: Export opportunities for Ontario corn to Northern Europe will be limited.
Wheat: An estimated 900,000 acres of winter wheat will be planted, down from 1.1 million acres.

As of Oct. 29, U.S. farmers had harvested 85 per cent of the soybean crop and 71 per cent of the corn. Export demand for U.S. corn and soybeans has improved as the market digests the harvest pressure. The USDA trimmed its corn and soybean yield estimates on the October World Agriculture Supply and Demand Estimates (WASDE) report and we anticipate a minor downward revision on the November data.

In South America, we estimated that Brazilian farmers had planted 38 per cent of the soybean crop as of Oct. 30 and 35 per cent of first corn crop. Argentine farmers have planted approximately 23 per cent of the corn crop and farmers are in the early stages of soybean planting.

U.S. corn is competitive with Brazilian origin while Argentinean corn offers have dried up due to lower harvest this past spring. The U.S. is expected to take over the competitive advantage on soybeans later in November as the exportable surplus from Brazil dwindles.

Argentina and Australia have received some rains over the past few weeks, which has sustained yields on upcoming wheat crops. Some private analysts have bumped up Australian production.

The Bank of Canada continued with the pause of monetary tightening and held its policy rate at five per cent for the second consecutive meeting. We believe interest rate hikes are at the end or near the end.

The Canadian dollar continues to depreciate against the U.S. greenback as U.S. bond yields have increased at a faster pace relative to their Canadian counterparts. The level of the Canadian dollar can provide an indication of the economy six to eight months forward and the recent depreciation has analysts projecting recessionary type behaviour in the first half of 2024. A weaker Canadian dollar is supportive for Ontario grain and oilseed prices.

Soybeans

We continue to project a crop size of 4.2 million tonnes, up from last year’s output of four million tonnes and up from the five-year average, which is also four million tonnes. We’re expecting Ontario soybean farmers to deliver three million tonnes into the commercial system by Dec. 31. This will leave 1.2 million tonnes of soybeans on Ontario farms at the end of December. Soybean bids from the domestic crusher are equivalent to levels for export movement.

From Sept. 1 through Dec. 31, we’re projecting Ontario soybean exports to reach 1.5 million tonnes, while the Ontario domestic crush is estimated at 600,000 tonnes. The market is functioning to encourage export demand as larger supplies enter the pipeline. Offshore values are determining domestic prices.

At the time of writing this article, Brazilian soybeans were offered at US$479/tonne f.o.b. Paranagua, down $7 from two weeks earlier. U.S. soybeans were quoted at $498/tonne f.o.b. the Gulf, down $6/tonne from our previous issue. Ontario soybeans were quoted at US$470/tonne f.o.b. St. Lawrence port, down $5/tonne from 14 days ago. The weaker Canadian dollar has contributed to the lower export offers.

The exportable surplus from Brazil is dwindling and the U.S. is expected to be the dominant exporter during November and December. The 30-day weather forecast calls for drier conditions in parts of Brazilian soybean area. This may cause the Brazilian offers to increase as the market incorporates a risk premium due to the uncertainty in production. Argentina is on the sidelines due to the drought last year and will only be active in the export market later in March or April.

We’re expecting the USDA to make a downward revision to the U.S. soybean yield on the November or December WASDE report. U.S. farmer selling will also slow over the next month. This should provide an opportunity for Ontario farmers to increase sales.

What to do: We’re advising Ontario farmers to sell the second 20 per cent increment of their 2023 production, bringing total sales to 40 per cent. On Oct. 27, the January soybean futures closed at $13.19/bu. while the March contract was at $13.33. The market is telling producers to sell now for February or March delivery.

Corn

Despite the delayed harvest, we continue to project an Ontario corn crop of 10.1 million tonnes, up from the 2022 crop size of 9.4 million tonnes and up from the five-year average of 9.2 million tonnes. We expect Ontario farmers to sell 5.3 million tonnes from Aug. 1 through Dec. 31.

During the first five months of the crop year, export demand is estimated at 500,000 tonnes, while total domestic usage is 2.7 million tonnes. There will be a buildup of commercial supplies, which will keep pressure on the Ontario basis levels. The Ontario corn market is functioning to encourage demand.

At the time of writing this article, Brazilian corn was offered at US$221/tonne f.o.b. Paranagua, down $3/tonne from two weeks previous. U.S. corn was offered at $222/tonne f.o.b. the Gulf, down $5/tonne from 14 days earlier.

Offers from Argentina evaporated due to tight stocks but this hasn’t influenced the world market. French corn was quoted at US$225/tonne f.o.b. La Pallice, up $5/tonne from our previous issue. The French corn harvest is in the final states and trade estimates have the crop at 11.5 million tonnes, up 700,000 tonnes from last year. A nominal value for Ontario corn was US$210/tonne f.o.b. St. Lawrence port, unchanged from mid-October.

The Russian invasion of Ukraine has resulted in abnormal trade flows as Ukraine wheat and corn seek alternative routes to tidewater. In the Hungarian domestic market, for example, corn is trading in the range of US$150-$160/tonne.

European wheat exports continue to lag year-ago levels and additional supplies are being pushed into domestic feed channels. This environment is limiting export opportunities for Ontario corn as the main destinations in past years have been Northern European countries.

The U.S. corn market is also functioning to encourage demand. U.S. crop year-to-date export sales are running 24 per cent above year-ago levels. Ethanol production is up nine per cent compared to last year.

The U.S. corn crop is expected to finish in the range of 180-181 million tonnes. This is down from the October WASDE number of 382.6 million tonnes but above the five-year average of 365 million tonnes. At low prices the market discourages production. Next spring, U.S. corn acres are expected to decline by two million acres compared to the 2022 area. This will come on the heels of a year-over-year 12 to 15 million tonne decline in Brazilian corn output.

What to do: In a year like 2023-24, the best strategy is to make incremental sales throughout the crop year. Earlier in spring, we advised farmers to forward sell 20 per cent of their corn production. In this issue, we’re advising farmers to increase sales by 20 per cent, bringing total sales to 40 per cent for the 2023 crop.

We’re looking for a bounce in the futures market during November and we want to take advantage of the price strength. We’re going to sell the bulk of the 2023 production in the latter half of the crop year.

Wheat

Ontario farmers planted 1.1 million acres of winter wheat during fall 2022. For the 2023-24 crop year, we’re projecting Ontario winter wheat area at 900,000 acres. Low prices tend to discourage production and the adverse weather also contributed to the year-over-year decline in acres. This lower acreage estimate could be supportive to the wheat market in the latter half of the crop year.

For the 2023-24 crop year, we feel comfortable with Statistics Canada’s estimated of 2.6 million tonnes, up from the five-year average of 2.1 million tonnes. We estimate that 600,000 tonnes of wheat will be fed domestically in the 2023-24 crop year.

The bulk of this volume has likely traded into feed channels. Milling wheat prices are now over $1/bu. premium to corn so merchants and farmers will not sell wheat into feed channels. Domestic millers have the bulk of their requirements covered so the Ontario wheat market is based on export demand.

U.S. soft red winter wheat production for 2023 was estimated at 12.2 million tonnes, up from the 2022 crop of 9.1 million tonnes and up from the five-year average of 8.1 million tonnes. Demand from south of the border has been subdued. U.S. farmers were aggressive sellers off the combine, saturating domestic milling demand.

Ontario wheat has to move into non-traditional destinations. In the latter half of October, the U.S. soft red and hard red winter wheat areas received timely rain, enhancing yield prospects for the 2024 crop. The U.S. winter wheat crops will be in good shape heading into dormancy.

On the world market, French soft wheat is offered at US$246/tonne f.o.b. Rouen and U.S. soft red winter is quoted at $256/tonne f.o.b. the Gulf.

Russian wheat has been setting the price structure on the world market. In the latter half of October, domestic Russian prices started to percolate higher but export values were unchanged in the range of $235-$240/tonne f.o.b. the Black Sea. Earlier in summer, traders were estimating the Russian wheat crop at 83 million tonnes but recent estimates are closer to 94 million tonnes.

Russia experienced adverse rains during the harvest of the winter and spring wheat crops. This could be the reason for higher domestic prices. We believe the rally in the domestic market will eventually lead to stronger export values from the Black Sea region.

What to do: We’re advising farmers with milling quality to be 30 per cent sold on their 2023 wheat production, up from our previous level of 15 to 20 per cent. The market continues to percolate higher, in line with the seasonal tendency. We want to sell into this strength. December and January are typically softer months for the wheat market. Producers with feed quality wheat should move to 50 per cent sold.

About the author

Jerry Klassen

Jerry Klassen

Markets Analyst

Jerry Klassen is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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