Statistics Canada released its final crop survey Dec. 2 for 2022 showing corn and soybean yields were lower than expected. Ontario farmers harvested 9.44 million tonnes of corn, which was below our estimate of 10 million tonnes. Soybean production came in at 3.996 million tonnes. This was down from Statistics Canada’s September survey of 4.111 million tonnes and trade estimates around 4.2 million tonnes.
The final winter wheat production estimate came in at 2.229 million tonnes, up from the earlier government projection of 2.040 million tonnes. We believe soybean prices are in the process of making seasonal highs so we have added onto our sales recommendation. Ontario corn prices are relatively unchanged from last month and we expect a seasonal rally later in spring. Ontario wheat prices are in the process of making seasonal lows.
Quick look
Soybeans: Supply and demand seem to be in balance domestically. Brazilian soybeans will dominate globally after February.
Corn: Uncertainty around South America’s crop remains.
Wheat: A bumper Australian crop is likely to skew demand for Russian wheat.
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The USDA’s December World Agriculture Supply and Demand Estimates (WASDE) report was considered neutral for corn, soybeans and wheat. Compared to the November report, there were no major changes. The corn and soybean markets are banking on a sharp year-over-year increase in South American production.
As of Dec. 10, Brazilian farmers were in the final stages of planting soybeans and the first corn crop is developing under favourable conditions. Average temperatures and precipitation are forecast for most of Brazil. Argentine farmers had planted 30 per cent of expected soybean acres and 28 per cent of the potential corn area. Argentina continues to receive below average precipitation.
The world wheat market is digesting Australia’s bumper harvest and aggressive offers from Russia and Ukraine.
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The Canadian dollar is expected to depreciate against the U.S. greenback during January and February. The Bank of Canada raised its key lending rate by 50 basis points from 3.75 per cent to 4.25 per cent on Dec. 7. Comments from Bank of Canada representatives suggest additional rate hikes will depend on upcoming economic data. The U.S. Federal Reserve will likely continue to aggressively increase interest rates during the first half of 2023. Chair Jerome Powell has stated the Federal Reserve will err on the side of raising rates too high and too fast to bring down inflation. There are dovish overtones from the Bank of Canada, while the U.S. Federal Reserve remains extremely hawkish. A weaker Canadian dollar will be supportive for Ontario grain and oilseed markets.
Soybeans
Ontario farmers harvested 3.996 million tonnes of soybeans this fall. This compares to last year’s output of 4.082 million tonnes and the five-year average of 3.939 million tonnes. Ontario fundamentals are not quite as burdensome as our earlier forecasts.
Ontario farmers are expected to sell three million tonnes of soybeans from Aug. 1 through Dec. 31. Domestic and export demand appears to be larger than earlier projections. Given the year-to-date data, we’ve bumped up the domestic crush to 850,000 tonnes and exports to two million tonnes for the first five months of the crop year.
In my previous article, we had supplies exceeding demand by 670,000 tonnes. This was too high. We can say that supply and demand are in balance as there is only a surplus of approximately 150,000 tonnes.
The price structure on the world market has changed. In our previous issue, U.S. soybeans were premium to Brazil. This situation has now reversed. At the time of writing this article, Brazilian soybeans were valued at US$587/tonne f.o.b. Paranagua while U.S. soybeans were quoted at $603/tonne f.o.b. the Gulf.
Argentinean soybean offers were hovering at $620/tonne due to the later planting period and drier conditions. Ontario soybeans were quoted at $590/tonne f.o.b. St. Lawrence port.
U.S. soybean export sales are running slightly above last year’s pace. The exportable surplus from the U.S. has been liquidated and the market will function to ration demand. U.S. offers from the Gulf need to maintain a premium over Brazilian values to curb additional sales. Brazilian beans will dominate the world market from February forward.
The USDA report had U.S. soybean production at 118.3 million tonnes, down 3.2 million tonnes from last year. Brazil’s upcoming harvest in February 2023 is expected to total 152 million tonnes, up 25 million tonnes from the previous output. The Argentine crop is in the early stages but output is expected to reach 49.5 million tonnes in March and April 2023, which reflects a year-over-year increase of 4.5 million tonnes. The Brazilian crop will be a record and weigh heavily on the world market.
What to do: This week, we’re advising farmers to increase sales by 20 per cent, bringing total soybean sales to 80 per cent. Once the Brazilian harvest moves into full swing, Ontario soybeans will be uncompetitive on the world market. It’s prudent to have the bulk of the crop sold.
Corn
Ontario farmers harvested 9.441 million tonnes this year. This output was marginally lower than the 2021 output of 9.475 million tonnes but still above the five-year average of 8.9 million tonnes. The fundamentals are not as burdensome as our earlier projections. We were expecting a crop of 10 million tonnes.
Farmer deliveries from Sept. 1 through Dec. 1 are expected to reach 5.9 million tonnes, down from our earlier estimates of 6.5 million tonnes. We’ve increased our domestic and export demand projection from 3.8 million tonnes to 4.2 million tonnes. Supplies exceed demand by 1.7 million tonnes, instead of our earlier estimate of 2.7 million tonnes. This surplus will be eliminated by the end of February, which is 30 days earlier than our previous forecast. Basis levels are expected to increase over the winter.
At the time of writing this article on Dec. 11, Brazilian corn was quoted at $288/tonne f.o.b. Paranagua, down $12/tonne from our previous issue. U.S. corn was quoted at $306/tonne, down $20/tonne. Ukraine corn was valued at $255/tonne f.o.b. the Black Sea, down $5/tonne from our previous issue. French corn was quoted at $276/tonne f.o.b. La Pallice, down $44/tonne from two weeks earlier.
Since Nov. 14, French corn has dropped $74/tonne in the f.o.b. position. Ontario corn was quoted at US$280/tonne f.o.b. St Lawrence port. French corn is now more competitive than Ontario corn into Northern European destinations.
Traders are comfortable with the USDA’s U.S. corn production estimate of 353.8 million tonnes. Brazil’s corn output is expected to reach 126 million tonnes. The first crop is approximately 26 million tonnes and the second crop is projected to reach 100 million tonnes. Keep in mind this crop will only be planted February.
The USDA’s Argentine estimate was 55 million tonnes, up 4.5 million tonnes from the previous harvest. Planting will be completed 20 to 30 days later than normal and timely rains are needed. Traders believe this estimate is about five to eight million tonnes too high given current conditions. There is a fair amount of uncertainty about South America’s total crop.
What to do: This week, we are advising Ontario farmers to sell 10 per cent of their 2022 production, bringing total sales to 50 per cent. French prices are under pressure, which will weigh on the Ontario market. On the flip side, South American production is uncertain. Timely rains would set a negative tone to the world market.
Wheat
Ontario farmers harvested 2.227 million tonnes of winter wheat, according to Statistics Canada. This was up from the September estimate of 2.040 million tonnes and up from the five-year average of 2.129 million tonnes. The farmer survey had the average Ontario winter wheat yield at 96.5 bu./acre, which was a record. On the model- based survey, the yield estimate was only 88.5 bu./acre.
Traders are now wondering if we will see a similar jump in U.S. yields when the USDA releases its final production estimate on Jan. 12. While Ontario produces a small percentage of North American wheat, the implications of the survey are far reaching.
World export values remain under pressure with Black Sea offers setting the price structure. The Black Sea Grain Initiative coordinated by the United Nations was extended by 120 days. Traders are working double time to move as much wheat out of Ukraine and Russia possible prior to the expiration around March 20.
Ukraine and Russian wheat 11.5 per cent protein was quoted at $285/tonne f.o.b. Black Sea, unchanged from our previous issue. French soft wheat was offered at $334/tonne f.o.b. Rouen, down $9/tonne from 14 days earlier. U.S. soft red winter wheat was quoted at $331/tonne f.o.b. the U.S. Gulf, down $19/tonne from late November. U.S. hard red winter is quoted at $384/tonne f.o.b. the Gulf.
The USDA confirmed the Australian crop of 36.6 million tonnes, up from last year’s output of 36.4 million tonnes. Australia needs to sell about 27 million tonnes of wheat, which will saturate Southeast Asian demand and cause strong competition with Black Sea origin into Africa and the Middle East. Russian wheat will likely trade into Central and South America and potentially into Mexico. These markets are traditional homes for Canadian and U.S. wheat.
At the time of writing this article, the Chicago December wheat was trading at $7.12 while the May contract was at $7.44. The large carrying charge is telling farmers to sell now for May delivery. This carrying charge in the market will erode.
What to do: This week, we’re advising producers to sell 10 per cent of their 2022 production for April or May delivery, bringing total sales to 40 per cent. We want to listen to the market with the large carry in wheat futures. On the flip side, the wheat market tends to incorporate a risk premium when the Northern Hemisphere winter wheat comes out of dormancy. This risk premium could be enhanced with the expiration of the Black Sea Grain Initiative.
