Ontario corn and soybean prices have been percolating higher over the past month. Domestic demand is moving through seasonal highs while exports are running above year-ago levels.
Farmers harvested the crop in a timely fashion, however, year-to-date deliveries into the commercial system have been similar to year-ago levels.
Recently, we’ve seen an increase in farmer selling. Ontario wheat prices are relatively unchanged from the previous issue. Wheat conditions were favourable as the crop moved into dormancy.
Soybeans: Ontario crush level running slightly above year-ago levels.
Corn: Ontario ethanol levels are at about 80-85 per cent of usual.
Wheat: Wheat prices staying put as millers have enough stock.
The United States Department of Agriculture’s World Agricultural Supply and Demand Estimates report for November was considered bullish for corn and soybean prices.
The corn and soybean markets are now focused on Chinese demand and South American weather.
Given the tighter U.S. fundamentals for corn and soybeans, the markets will be more sensitive to crop development in Brazil and Argentina.
Drier conditions in the U.S. Southern Plains were a drag on winter wheat development prior to dormancy. However, there is little correlation between fall conditions and yields the following June.
Russia will evaluate the need for export restrictions later in winter as the world’s largest wheat exporter contends with rising domestic prices.
Financial and commodity markets have been buoyed by positive large-scale trial results of COVID-19 vaccines from Moderna and Pfizer.
The “risk on” sentiment has been supportive for the Canadian dollar as equity market trade is at or near 52-week highs. It appears that the Bank of Canada and the U.S. Federal Reserve will keep their benchmark rates near historical lows for the next couple years. The Bank of Canada is relaxing its quantitative easing program, which may contribute to a stronger Canadian dollar relative to the U.S. greenback longer term.
Ontario soybean prices reached over $14.50 per bushel during mid-November, which spurred on farmer selling.
The Ontario domestic crush pace is running slightly above year-ago levels while exports have also improved over the past month to non-Chinese destinations.
Soymeal prices continue to percolate higher, which has been the main driver for domestic crush margins.
Ontario export prices are in line with the world market, which should keep exports running above year-ago levels through the late fall and early winter period.
Basis levels tend to ease once the Great Lakes freeze over, which may temper the upside in domestic prices.
We forecast the 2020-21 Canadian soybean carryout to come in at 200,000 tonnes, down from the 2019-20 ending stocks of 300,000 tonnes. The 2018-19 carryout was 700,000 tonnes, so the fundamentals are relatively snug from a historical perspective.
Soybean futures markets are digesting the recent USDA WASDE report, Chinese demand and weather forecasts for South America.
The USDA lowered the average soybean yield from 51.9 bushels per acre to 50.7 bushels per acre on the latest WASDE report.
U.S. soybean production is now expected to finish near 113.5 million tonnes, down from the October estimate of 116.2 million tonnes but up from the 2019 output of 96.7 million tonnes.
The U.S. domestic crush pace is expected to marginally exceed year-ago levels but exports will be up sharply.
As of Nov. 5, U.S. soybeans export sales commitments were up 125 per cent from a year ago, largely due to Chinese demand. Moving forward, talk in the trade is that China may have covered most of their requirements until new crop South American beans come on the market. Therefore, we see toppy price behaviour over the next month.
We’re starting to see slippage in basis levels in the Midwest.
We estimate that Brazilian soybeans are 60 per cent planted as of Nov. 8, while Argentina farmers have seeded about six per cent of the crop. The market has incorporated a risk premium due to the uncertainty in South American soybean production. This usually occurs early in the growing season.
What to do: This week, we’re advising producers to sell their fourth 20 per cent increment, bringing total sales to 80 per cent. During the next month, we’re going to see Chinese buying switch from American origin to Brazilian origin. Remember, grain merchants are always trading two to four months ahead. Longer term weather forecasts are variable for Brazil and Argentina, but if conditions improve, there is significant downside risk. There is an old saying that the bull has to be fed daily otherwise prices decrease. Currently, the market has factored in a tight U.S. situation and South American uncertainty.
The corn market is in a unique situation. Ontario corn exports are running slightly ahead of year-ago levels and domestic demand is considered similar to last year.
Ontario ethanol production is running at 80 to 85 per cent capacity and cattle-on-feed inventories tend to make a seasonal high over the winter. It’s hard to argue that Ontario fundamentals are significantly tighter than last year.
The 2019 harvest was extended due to adverse weather, while the 2020 crop came off under near optimal conditions. Ontario export values are in line with the world market, which should enhance offshore movement and be supportive for elevator bids over winter.
The USDA WASDE report was considered bullish for the corn market; however, the market has been in a consolidation pattern.
U.S. corn production was estimated at 368.5 million tonnes, down 5.5 million tonnes from the October report but up about 22 million tonnes from the 2019 output.
U.S. domestic demand will be similar to last year.
At this stage, U.S. exports are forecasted to reach 67.3 million tonnes, up from 45 million tonnes last year.
As of Nov. 5, U.S. exports were running 174 per cent of year-ago levels, so this demand is needed to sustain the market at the current levels. Currently, if world buyers need large volumes, U.S. corn is the most competitive on the world market, which will limit the downside in futures.
The 2020-21 corn carryout is expected to finish near 43.2 million tonnes, down from the five-year average of 51.4 million tonnes.
The market cannot afford a crop problem in South America. Argentina corn is about 31 per cent seeded while Brazilian farmers have planted about 75 per cent of the first crop.
The Argentine corn crop is estimated at 50 million tonnes, down from 51 million tonnes last year. Brazil’s first crop corn is estimated at 26 million tonnes and the second crop corn is projected to be 84 million tonnes. This second corn crop, or safrina, will be seeded in February.
The corn market is not influenced significantly by weather at this time. We usually see a weather market develop in corn during April and May when the Brazilian crop is in pollination and U.S. corn production is in the early stages. At this stage, weather is more important for beans but not the focus for corn.
What to do: We’ve advised producers to be 60 per cent sold on their 2020 production. We’re more aggressive on soybean sales, but we’ll be patient to make additional recommendations on corn. There is a high probability for a weather market to develop later in spring 2021 when the Brazilian second crop goes through pollination and traders start focusing on U.S. production.
Ontario wheat prices have been trading in a sideways pattern over the past month while the futures markets have been volatile. Talk in the trade is that Canadian and U.S. millers have their nearby requirements covered.
Ontario export movement is exceeding year-ago levels but there is stiff competition from the Black Sea region. Once the Great Lakes freeze over, export movement tends to slow.
The Australian harvest is progressing under favourable conditions and the Argentine harvest will move into high gear during December.
It’s hard to make a case for further upside in the wheat market.
Usually, we see about 500,000 tonnes of Ontario wheat move into feed channels. However, this year, the wheat crop was very good quality. Secondly, the Ontario wheat premium over corn is significant enough to prevent wheat from trading feed rations. There are larger supplies for milling use compared to past years.
The soft red winter wheat futures have traded high enough to ration demand. U.S. soft red winter wheat exports will be down from last year, which is also capping the upside for Ontario soft red values.
The seasonal highs in wheat are likely in place. We’ll need to see strength in corn or a problem in Northern Hemisphere growing conditions next spring to result in further upside. Both of these factors will only influence the wheat complex next spring.
Russia is the largest wheat exporter but we’ll only have an idea on potential export restrictions next February. The Russian government appears to be content on letting exports flow for the time being. If there is no further upside in the wheat market, they won’t be willing to implement any price or export restrictions.
What to do: We’ve advised Ontario producers to be 60 per cent sold on their 2020 production. While the wheat crop is in dormancy, farmer selling should also be in dormancy.