From May 15 through June 15, the bulk of the Ontario growing region received 40-60 per cent of normal precipitation and some pockets received less than 40 per cent of normal. Timely rains are needed to sustain yield potential on the row crops.
Winter wheat is experiencing yield drag due to drier conditions. Farmer selling has dried up over the past two weeks as producers monitor crop development.
Quick look
Soybeans: Storing old crop soybeans into new crop positions is not recommended.
Corn: Old crop prices are elevated and new crop values are rising due to uncertainty with Ontario new crop production.
Wheat: Ontario wheat is currently competitive with corn for domestic feed.
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Ontario corn and soybean prices continue to trade above world values. Corn exports are lower than anticipated for this time of year. The soybean market is functioning to encourage imports. Ontario wheat is priced competitively into domestic feed channels. This has sparked domestic flour millers to increase coverage for new crop positions. Basis levels for wheat make seasonal lows from late June through the first half of August.
At the time of writing this article, U.S. crop conditions were deteriorating due to drier conditions across the Midwest. The USDA did not change its U.S. yield projections on the June World Agriculture Supply and Demand Estimates (WASDE) report. However, private analysts and traders are factoring in yield drag for U.S. corn and soybeans.
Brazil’s Safrinha corn harvest is in full swing and farmers are struggling to store record crop. Brazilian soybean offers continue to dominate the world market. The U.S. winter wheat harvest is in the early stages and yields are coming in as expected.
The French and German wheat harvests will begin in July and the wheat crop has experienced optimal conditions late in the growing season. Russian wheat offers continue to dominate the world market. Egypt continues to struggle with currency reserves and wheat payments.
The Bank of Canada raised its overnight lending rate on June 7 from 4.5 per cent to 4.75 per cent. Financial markets are factoring in an additional rate hike of 25 basis points on July 12, which would bring the policy rate to five per cent.
The Canadian dollar has strengthened over the past two weeks as short-term bond yields are now premium to their U.S. counterparts. The U.S. Federal Reserve is expected to pause its interest rate hikes for the time being. It takes 12-18 months for interest rate increases to work through the economy.
Analysts expect energy prices in the latter half of 2023, which could result in lower demand for biofuels. The U.S. government is expected to update its biofuels mandates later in June.
Soybeans
At the time of writing this article, Brazilian soybeans were offered at US$476/tonne f.o.b. Paranagua, up $8/tonne from 14 days earlier. U.S. soybeans were quoted at $540/tonne f.o.b. the Gulf, up $20/tonne from two weeks earlier. Ontario soybeans were valued at US$535 f.o.b. St. Lawrence port.
Ontario soybean stocks are expected to drop to historical lows at the end of the 2022-23 crop year. We were expecting the market to encourage imports during the summer. Currently, Ontario crusher bids and elevator bids in Michigan are similar. The economics to import U.S. soybeans into Ontario do not quite work.
The Ontario domestic crush pace late in the crop year may come in lower than expected as supplies dry up on both sides of the border. Seasonally, local crushers take their downtime for upgrades and maintenance during the summer months.
Ontario soybean exports have come to a standstill due to strong competition from Brazilian origin. Soymeal prices have dropped sharply over the past month and Ontario crush margins have deteriorated.
We’ve lowered our Ontario soybean crop estimate to 3.8 million tonnes, down from last year’s output of four million tonnes. On the June WASDE report, the USDA left its U.S. yield projection at 52 bu./ac., resulting in a production forecast of 122.7 bu./ac. However, private traders are now factoring in an average U.S. yield of 49 bu. and a production of figure of 115.6 million tonnes. Last year’s U.S. output was 116.4 million tonnes.
The USDA bumped up Brazilian output by one million tonnes to 156 million tonnes. This compares to last year’s crop of 130.5 million tonnes. Argentine farmers are in the final stages of their soybean harvest, which is now estimated at 25 million tonnes. This is down from last year’s output of 44 million tonnes. Argentina is the world’s largest soymeal exporter. Despite the smaller crop, meal prices dipped to six-month lows.
There is inverse between old- and new-crop soybean prices. Don’t store old crop soybeans into new crop positions. Sell remaining stocks. The soybean futures are entering a weather market. Harvest pressure from South America has dried up now that Argentinean harvest is in the final stages. The soybean futures market may have breathing room to move higher in the short term but don’t expect a major rally.
What to do: We have advised producers to be 100 per cent sold on old-crop soybeans and 20 per cent sold on expected new-crop production.
Corn
At the time of writing this article, Brazilian corn was offered at US$230/tonne f.o.b. Paranagua while U.S. corn was quoted at $270/tonne f.o.b. the Gulf. French corn was quoted at $255/tonne f.o.b. La Pallice. Ontario corn was valued at US$250/tonne f.o.b. St. Lawrence port.
We’ve bumped up our 2022-23 Ontario corn carryout from 1.5 million tonnes to 1.8 million tonnes. This compares to last year’s ending stocks of two million tonnes and is similar to the five-year average of 1.8 million tonnes. From April 1 through August 31, Ontario domestic demand is estimated at four million tonnes while exports are projected at 500,000 tonnes. Total demand is approximately 4.5 million tonnes.
Exports are coming in lower than expected late in the crop year due to strong competition from French and Brazilian origin into Northern European destinations.
Uncertainty with Ontario new crop production is keeping old crop prices elevated and raising new crop values. We’ve lowered our Ontario corn production from 9.5 to 9.1 million tonnes. This compares to last year’s crop size of 9.4 million tonnes and the five-year average of nine million tonnes. We’re not going to see a big export push out of Ontario with carryout stocks and upcoming production at the five-year average.
U.S. corn yield projections are also being taken down from the USDA forecast due to drier conditions. Analysts are now estimating the U.S. corn crop at 378 million tonnes. This is down from the USDA forecast of 388 million tonnes but above the five-year average of 365 million tonnes.
According to the USDA, total Brazilian corn output is now expected to reach 132 million tonnes, up 16 million tonnes from last year’s crop size of 116 million tonnes. Argentine output will likely finish near 35 million tonnes, which is a year-over-year decrease of 14.5 million tonnes.
South America balances out as total Argentinean and Brazilian exports will reach 78 million tonnes, down four million tonnes from last year. The difference will be more than offset from the U.S.
The U.S. and Ontario crop estimates have been reduced from earlier forecasts. Exports have decreased as old crop domestic prices remain elevated above world values. During harvest, U.S. market will function to encourage demand. Prices out of the Gulf need to be competitive with Brazilian origin.
What to do: We’ve advised Ontario farmers to be 100 per cent sold on their 2022 production and 20 per cent sold on new crop.
Wheat
Ontario winter wheat has experienced moisture stress over the past 30 days. We’ve trimmed out yield estimate from 92 bu./ac. to 88 bu. We are now expecting the Ontario winter wheat crop to finish near 2.5 million tonnes, up from last year’s crop of 2.2 million tonnes and up from the five-year average of 2.1 million tonnes. Ontario winter wheat prices are competitive into domestic feed channels for August through December. This has set the price floor.
Ontario flour millers have become more aggressive for new crop positions given the drier conditions. Basis levels for wheat make seasonal lows in July. This is often when domestic millers and major importers book their upcoming crop year requirements.
Ontario wheat is priced in line with the world market, which is also limiting the downside. Ontario wheat for the last half of August is quoted at US$240/tonne f.o.b. St. Lawrence. Russian wheat continues to trade at $240/tonne f.o.b. the Black Sea. French wheat is quoted at $251/tonne f.o.b. Rouen while U.S. soft red winter is valued at $252/tonne f.o.b. the Gulf. U.S. hard red winter is offered at $340/tonne f.o.b. the Gulf as the market continues to ration demand.
European wheat has recently traded into U.S. flour milling channels. The price spread between similar classes of European and U.S. wheat has been record large this year.
The U.S. hard red winter wheat harvest is progressing slowly due to intermittent rains in Kansas and Oklahoma. Farmers will begin the soft red winter harvest over the next two weeks. French and German harvests will move into high gear in July.
There will be fairly stiff competition on the world market through the summer. Russian wheat offers continue to dominate into Africa and Middle East. There are no problems in Europe and Russia. The markets appear to be shrugging off the year-over-year decrease in Ukrainian output.
What to do: We’ve advised producers to be 100 per cent sold on old crop. Producers should be patient to make new crop sales. Our first sales recommendation for the 2023 production will come in October. Ontario wheat prices are now competitive with corn into domestic feed channels. Ontario export offers are also in line with European and Russian origin.
The U.S. soft red winter crop will reach 12.5 million tonnes, up from the 2022 output of 10.2 million tonnes. U.S. farmers will sell about six million tonnes of soft red winter wheat into commercial channels during the summer. Producers need to let this volume work through the pipeline.
