Ontario corn, soybean and wheat crops have experienced yield drag due to the hot and dry weather conditions. During the first half of July, most of the Ontario growing region received less than 10 mm of rain while temperatures have been one to two degrees above normal.
Soybeans: Ontario soybean export interest has been quiet.
Corn: Heat stress means lower yield estimate for corn.
Daily highs have been above 25 C for 10 consecutive days while some areas have experienced plus 30 C temperatures for seven consecutive days. Weather forecasts are quite variable but minor rains are expected over the next 14 days while temperatures are expected to be normal to above normal.
The Ontario corn crop is in the pollination phase while the bulk of the soybean crop is entering the critical pod filling stage.
Ontario corn and soybean prices have incorporated a small risk premium due to the uncertainty in Northern Hemisphere production. Ontario winter wheat prices are up approximately 50 cents per bushel as the world markets absorb production estimates from the major exporters. The July 11 USDA WASDE report was considered bearish for corn and soybean futures and neutral for the wheat market.
The focus for the next 30 days will be weather and yields, however there is no extensive heat in the forecast for the U.S. Midwest. Demand projections have taken a back seat for the time being.
Since early July, the September Canadian dollar has traded in a range between 73 and 74.50 cents U.S. equity and energy markets have also been in a consolidation pattern due to the uncertainty in economic activity over the next three to four months.
Having worked for a couple of major grain companies, I’ve seen that 60 to 70 per cent of the elevator purchases are in the lower third of the price range for any given year. Despite what you hear in the coffee shop, farmers sell the bulk of their crop at the lows.
Our strategy is to make timely sales on seasonal rallies throughout the year to increase the overall average price. By having a third-party advisor, the personal emotion is taken out of the marketing. It’s important to have a good understanding of your local situation which determines your basis. Secondly, its important to have a world view to understand the overall price structure.
At this stage, we haven’t changed our yield projection for Ontario soybeans and continue to use a five-year average. The recent weather and upcoming forecasts have lowered the probability of above-average yields.
We continue to project an upcoming crop size of 3.6 million tonnes, down from the 2019 output of 3.7 million tonnes but up from the five-year average of 3.0 million tonnes. Canadian farmers have been regular sellers late in the crop year which has kept the commercial pipeline fluid. Basis levels have been weakened as the soybean futures rallied during the first half of July.
Western Canadian beans continue to flow into Eastern Canada. Export interest has been rather quiet late in the crop year. Imports from the U.S. have been minimal given the stronger prices just south of the border.
The USDA WASDE report was considered bearish for the soybean market because the 2018/19 carryout was increased from 15.9 million tonnes on the June report to 16.9 million tonnes.
The USDA continued to use the trend yield estimate along with the June 30 acreage number. U.S. production for 2020 was estimated at 112.5 million tonnes up from the 2019 output of 96.7 million tonnes. Brazilian production was raised by two million tonnes to 126 million tonnes, up from 119 million tonnes last year while Argentine production was left unchanged at 50 million tonnes, down from the previous year of 55.3 million tonnes.
More importantly, China’s import demand for 2020/21 was left unchanged at 62 million tonnes, similar to the 2019/20 number of 61 million tonnes. Currently, U.S. soybeans are a discount to Brazilian origin, but Chinese and overall export demand hasn’t been sufficient to boost prices. Soybean product values are expected to trend lower into the fall period despite the reopening of economies after COVID.
What to do: This week, we’re advising producers to sell their final 20 per cent increment of 2019 production. Earlier, we were banking on a major weather rally but the market appears to be content with the USDA yield projection and with no change in Chinese demand, the futures market is softer. We’re 20 per cent sold on new crop to provide movement off the combine. The soybean market experiences seasonal strong demand in the late fall period at which time we’ll advise our next sale. We’ll avoid selling during the main harvest period.
The Ontario corn crop has experienced stress over the recent weeks. Therefore, we’ve lowered our yield projection from the five-year average of 158.9 bushels per acre to 156.5 bushels per acre.
Ontario corn production is now estimated at 8.9 million tonnes, down from our previous forecast of 9.1 million tonnes but still up from the 2019 output of 8.6 million tonnes. Despite the recent rally in the futures market, Ontario corn prices were relatively flat which reflects that end users have sufficient coverage for the next 30 to 45 days. There always tends to be an increase in farmer selling late in the crop year and this summer was no exception.
Similar to soybeans, Ontario prices remain elevated compared to the Northern U.S. which has hindered imports. This is the hangover effect from last year’s adverse harvest in the northern states and in Ontario.
The USDA WASDE report was considered bearish for the corn market on a number of factors. First, the USDA incorporated data from their June 30 stocks report. Without going into detail, the 2019/20 carryout came in at 57.1 million tonnes, up nearly four million tonnes from the June report. For 2020/21, the USDA continued to use trend yield so traders don’t believe weather is having much of an effect on overall conditions.
The 2020 production was estimated at 381 million. Although this is down from the June estimate of 406.3 million tonnes, it’s still above the 2019 output of 345.9 million tonnes. Ending stocks for 2020/21 will remain burdensome at 67.2 million tonnes, up from the 2019/20 carryout of 57.1 million tonnes. U.S. ethanol production continues to run below year-ago levels and U.S. export values are premium to South American origin.
Now that the heat has been taken out of the forecast, the risk premium that was in the futures market is eroding. The corn market usually makes seasonal lows in the early stages of the North American harvest.
What to do: We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. Ontario old crop corn prices are premium to new crop. The market is telling producers not to store old crop stocks into new crop positions.
The Ontario corn market will function to encourage demand during the harvest period. Given the burdensome supply situation, there will be potential for imports of U.S. corn over the winter period which will limit the upside in Ontario.
Ontario winter wheat prices are up nearly 50 cents per bushel over the past couple weeks, despite the ongoing harvests in the Northern Hemisphere. The Ontario winter wheat harvest is in the early stages and will move into high gear by the end of the month. The Ontario crop has suffered, there is no doubt about it. The market for soft red winter wheat is not as bearish as we earlier anticipated for two main reasons.
Earlier in June, we were forecasting above-average yields for Ontario winter wheat; however, it now looks like yields will finish around 78 bushels per acre, down from the five-year average of 82.8 bushels per acre. Ontario winter wheat production is expected to finish around 2.2 million tonnes, down from our earlier projection of 2.4 million tonnes but up from the 2019 output of 1.4 million tonnes.
Secondly, it looks like the U.S. soft red winter fundamentals will be historically tight for the second year in a row. U.S. soft red winter wheat production was estimated at 7.6 million tonnes, up from the 2019 output of 6.5 million tonnes. While production is higher, total stocks at the beginning of the 2020/21 crop year are actually down last year due to the lower carry-in supplies.
Without going into details of demand, the U.S. soft red winter carryout for the 2020/21 crop year is estimated at 2.7 million tonnes, down from the five-year average of 4.5 million tonnes. U.S. values in the northern states need to trade at a premium to Ontario prices to encourage imports.
The soft red winter wheat market is not as bearish as we earlier projected and we believe the lows are likely in place for the season. We want to point out that the USDA forecasted the hard red winter carryout at 11.5 million tonnes, down from the five-year average of 14.4 million tonnes. The Kansas wheat futures are not bearish from current levels.
The spring wheat futures will struggle because of the larger Canadian crop and conditions are excellent in Western Canada. There were no major changes to production estimates from other major exporters. European wheat production is estimated at 139.5. down from 154.9 last year; Australia’s crop is projected at 26.0 million tonnes, up from the 2019 output of 15.2 million tonnes. Russia’s crop is expected to finish near 76.5 million tonnes, up from 73.6 million tonnes last year; Ukraine’s crop is estimated at 26.5 million tonnes, down from 29. 1 million tonnes in 2019.
What to do: We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. We’re planning to make our next sale in mid to late October. The wheat market has a very strong seasonal tendency to rally from August through October, once the Northern Hemisphere harvests are wrapped up and just prior to the Australian and Argentine harvests.