Large jump in U.S. soy acres didn’t materialize

Corn acres also didn’t rise as much as expected in latest USDA report

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Weather has been mostly favourable for Ontario wheat, corn and soybean crops over the past month. Average type temperatures have materialized while precipitation levels are quite variable.

Northern counties have received above normal precipitation while the counties in the south including Kent, Middlesex, Elgin and Norfolk are on the dryer side. The region around Ottawa has also received 40 per cent to 60 per cent of normal precipitation over the past 30 days.

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Quick look

Soybeans: Western Canadian soybeans continue to trade into Ontario.
Corn: Ontario corn production expected at slightly below the five-year average.
Wheat: Healthy wheat will mean large jump in total harvest over last year.

The 14-day forecast for the Ontario growing region, as of June 30, calls for above normal temperatures and below normal precipitation. This may influence yields for corn and soybeans; therefore, at this stage we are using average type yields for our production forecasts. The Ontario winter wheat crop is in the final development stages with some areas in the south beginning to ripen. The bulk of the winter wheat harvest will occur in mid July. There are no disease issues for the wheat crop.

Statistics Canada’s June acreage survey was considered neutral for Ontario grain and oilseed markets because the numbers were not far off from the March data. The USDA acreage report released on June 30 was constructive for corn and soybean values as the data came in below pre-report trade estimates.

Weather and yield development in Canada and the U.S. will be the focus over the next month. The world corn market is under pressure. The Argentine harvest is basically finished and there is strong competition on the world market from South America for remaining old crop and new crop positions.

The U.S. soybean complex is somewhat constructive but this is dependant on Chinese buying interest over the next three to four months. U.S. beans out of the Gulf are discounted to Brazilian origin.

Canada’s relationship with China appears to be deteriorating with the ongoing extradition trial of Huawei executive Meng Wanzhou. The U.S. soft red winter wheat harvest is nearing 50 per cent complete while the Russian and European harvests are in the early stages.

The Canadian dollar continues to grind lower since making highs around 75 cents U.S on June 10. Economic uncertainty appears to be the theme from the Bank of Canada and the U.S. Federal Reserve. Recent polls have the Democrats leading for the House, Senate and the presidential seat in this fall’s election, which is somewhat negative for the Canadian economy.

Senator Biden is opposed to pipelines from Canada and oilsands development, which would be bearish for the resource-based currency longer term. Recently, U.S. Trade Representative Robert Lighthizer has taken issue over the allocation of quotas regarding cheese and the surge of U.S. imports of aluminum from Canada.

Soybeans

According to Statistics Canada, Ontario farmers planted 2.850 million acres of soybeans this spring, down from the 2019 seeded area of 3.115 million acres. Using a five-year average yield of 46.7 bushels per acre, production has potential to reach 3.6 million tonnes, down marginally from the 2019 output of 3.7 million tonnes but up from the five-year average of three million tonnes.

We continue to see Western Canadian beans trade into Ontario, which is limiting the upside for local Ontario prices. Canadian export demand is rather sluggish but there has been some recent business to Iran and Europe. Canadian crop year-to-date exports to May 30 were 2.5 million tonnes, down from 3.5 million tonnes last year. Demand from China for Canadian soybeans is non-existent.

U.S. farmers planted 83.8 million acres of soybeans this spring compared to 2019 area of 76.1 million acres. While this was similar to the March survey of 83.5, pre-report estimates ranged from 84.3 to 85.6 million. Using trend yields, U.S. soybean production is estimated to come in at 112.6 million tonnes, up from last year’s crop size of 96.7 million tonnes.

The 2020/21 carryout projection will likely remain around 10.8 million tonnes, which was the estimate on the USDA’s July WASDE report.

This compares to the 2019/20 ending stocks of 15.9 million tonnes. The fundamentals for U.S. soybeans are neutral to bullish. We’re looking for the soybean futures to incorporate a risk premium over the next month. If adverse weather materializes, the carryout has potential to be rather snug for the upcoming crop year. The focus will be on U.S. production rather than Chinese demand in the short term.

At the time of writing this article, Ontario soybean prices were hovering around $11.45/bushel for old crop and just above $11/bushel for new crop, relatively unchanged from earlier in June.

What to do: We’ve advised producers to be 80 per cent sold on old crop and 20 per cent sold on new crop. Let’s see if the market experiences a bounce over the next month at which time we’ll make our final sales recommendation for the 2019 production.

Corn

Statistics Canada reported that Ontario farmers planted 2.191 million acres of corn this spring, which was similar to the 2019 planted area of 2.203 million acres. Using a five-year average yield, Ontario corn production has potential to reach 8.6 million tonnes, which is the same as last year’s output but down marginally from the five-year average of 8.7 million tonnes. Corn pollination will occur from July 20 through to July 30, so this will be a critical period for Ontario yield development.

U.S. farmers planted 92.006 million acres of corn this spring, up from the 2019 seeded area of 89.7 million acres. This number was considered slightly bullish for the corn market because pre-report estimates ranged from 94 to 96 million acres and the March survey had acreage of 97 million.

Using a trend yield, production for 2020 has the potential to finish near 384 million tonnes, which is down from the June WASDE report number of 406 million tonnes but up from the 2019 output of 345 million tonnes.

This is a serious fundamental shift for corn in the short term. At this stage, we’re forecasting a 2020/21 U.S. corn carryout of 62 million tonnes, up from the 2019/20 ending stocks projection of 53 million tonnes and up from the five-year average of 51 million tonnes.

The forecast for the first half of July calls for above normal temperatures for the bulk of the Midwest. If yields come in below trend, the U.S. corn fundamentals could tighten over the course of the 2020/21 crop year.

We’ve mentioned in previous issues that the Ontario corn market was functioning to ration demand by trading at a premium to world values. Local elevator bids are relatively unchanged from earlier in June with old crop bids around $4.65/bushel and new crop bids hovering at $4.25/bushel.

What to do: The inverse in the market will likely erode as new crop approaches. The market is telling producers to sell now, instead of storing into new crop positions. We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. If we see a significant weather rally, this is an opportunity to catch up on our sales recommendations.

Wheat

The Ontario winter wheat crop endured the winter without major winter-kill. Last fall, farmers seeded 1.162 million acres of winter wheat. Statistics Canada reported that there were 1.036 million acres of winter wheat remaining this spring which compares to last year’s remaining stand of only 656,000 acres.

We’re projecting the average winter wheat yield to finish near 85 bushels per acre, up from last year’s yield of only 76.8 bushels per acre and up marginally from the five-year average yield of 82.8 bushels per acre. This would result in a winter wheat crop of 2.4 million tonnes, up from last year’s output of 1.4 million tonnes and up from the five-year average of 1.9 million tonnes.

Given the larger supplies, the function of the wheat market is to encourage demand through lower prices. Old crop soft red winter elevator bids are down about 0.50/bushel from early June while new crop prices have dropped off about 0.20/bushel.

The USDA acreage report was considered neutral for the wheat market. U.S. soft red winter wheat acreage came in at 5.6 million, similar to the March number of 5.7 million but up from the 2019 area of 5.5.

Similar to Ontario, we’re expecting minimal winterkill; therefore, we are still projecting U.S. soft red winter production to come in at 8.1 million tonnes, up from 6.5 million tonnes last year. There were no significant changes to the U.S. hard red winter wheat or hard red spring wheat acreage.

The wheat market tends to make a seasonal low during late July or early August. The Northern Hemisphere winter wheat harvests will keep the market under pressure. We may see some minor changes on Russian, Ukraine or European production estimates but it will not change the overall direction of the market.

For example, U.S. farmers sell nearly 50 per cent of the winter wheat during the summer months. Ukraine and Russian farmers also sell larger volumes during the summer.

What to do: We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop wheat. This will allow producers some movement off the combine to pay bills or for storage requirements. We’re planning to make our next sales recommendation during October.

About the author

Markets Analyst

Jerry Klassen

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

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