Above-average yields likely for corn, soybeans

Weather in critical month of August favourable for seed development

Corn is developing well in Ontario due to adequate rain and heat.

Most of the Ontario growing region has received 115 to 150 per cent of normal precipitation in the last 30 days. July temperatures were two to three degrees below normal. It’s been a cool and wet summer in Ontario. 

Above average yields are expected for Ontario corn and soybeans. After a prolonged harvest period, we’re forecasting an above average winter wheat yield for Ontario, although quality reports are variable. The grain and oilseed markets have traded sideways over the past month. Corn and soybean prices will likely hold value until North American production is more certain. 

August can be a critical month for crop development, especially for soybeans. The wheat market is expected to percolate higher over the next couple months due to tighter milling quality supplies among major exporters. 

Quick look
Soybeans: The Ontario soybean crop is forecasted to reach 4.2 million tonnes, up from our July estimate of 4.1 million tonnes.
Corn: U.S. crop size is still uncertain, but Ontario growers are in good shape for a record year.
Wheat: Quantity of winter wheat should be sufficient to satisfy domestic demand, but milling wheat prices will need to remain elevated to eliminate export potential.

The USDA is expected to lower U.S. corn and soybean yields on upcoming WASDE (World Agriculture Supply and Demand Estimates) reports. Growing conditions in the eastern Midwest have been optimal but will not totally offset dryer conditions in the Northern Plains. Drought in the Dakotas and Minnesota appears to be expanding south as summer progresses. 

Production estimates for Brazil’s Safrinha corn crop continue to deteriorate as adverse weather prolongs harvest progress. It’s been a terrible growing season for Brazil’s second crop corn. China and Southeast Asia are contending with a resurgence of COVID-19 in the form of the Delta variant. This is increasing ocean freight costs and unloading charges, especially for soybeans. 

China is expected to have 16 typhoons this fall, which will enhance port congestion and supply chain delays. There is also potential for winter wheat crop problems after flooding in the Henan province. 

The wheat market is contending with adverse weather in the Northern Hemisphere. Floods have damaged crop quality in France and Germany. Russia’s winter wheat crop experienced dryer conditions in the final stages of development. Analysts are projecting average to below average yields for Russia’s spring wheat crop. They are still getting a better idea of the flood damage in China’s Henan province, which is a major winter wheat producing area. The Canadian Prairies and North Dakota experienced drought-like conditions similar to 1988. 

Soybeans

Favourable growing conditions over the past month along with an optimal weather forecast have caused us to increase our Ontario soybean yield projection from 51.2 bushels per acre to 52.6 bushels per acre. We’re now forecasting the Ontario soybean crop to reach 4.2 million tonnes, up from our July estimate of 4.1 million tonnes and up from the 2020 output of 3.9 million tonnes. Ontario canola production has potential to reach 50,000 tonnes, up from last year’s crop size of 33,400 tonnes. 

In the U.S., the bulk of the soybean crop is in the pod development stage. Regions of the eastern Midwest will experience trend type yields or higher. However, we don’t believe this will be sufficient to offset the dryer conditions in the Northern Plains and pockets in the Western Midwest. 

Given the tight carryout from the 2020/21 crop year, the soybean market is sensitive to minor changes in the upcoming crop. We’re forecasting the U.S. soybean crop to finish in the range of 115 to 117 million tonnes, down from USDA’s July estimate of 120 million tonnes but still up from the 2020 output of 112.5 million tonnes. 

Demand from Ontario crushers will be minimal until new crop soybeans are available in October so the local price structure is based on export values. At this stage, we see Ontario soybeans out of the St. Lawrence priced at equivalent f.o.b. offers at the U.S. Gulf. U.S. soybeans out of the Gulf and the Pacific Northwest are at a $5-$7 discount to Brazilian origin. 

Chinese buying interest is uncertain in the short term. Quarantine measures along with travel and social constraints have decreased Chinese import projections for the fall period. U.S. and Canadian feed demand is at seasonal lows during August and September, which will limit the upside for soymeal. Soyoil grinding is lower due to weaker human and industrial demand. We have a bearish sentiment for the demand equation heading into September. 

What to do: The soybean market will experience downside during the harvest period. Producers are going to be aggressive sellers at harvest given current prices. We’ve advised farmers to be 20 per cent sold for harvest delivery. We’re planning on making our next sales once the U.S. crop is more certain. August and early September are critical months for yield development. 

Corn

We’ve increased our Ontario corn yield to 167 bushels per acre, resulting in a crop size of 8.9 million tonnes. Production estimates are now similar to year-ago levels. The weather forecast looks favourable for the kernel filling stage. 

Barring adverse conditions during harvest, Ontario farmers should be in good shape for a record year. Ontario corn prices continue to trade near 52-week highs for both old and new crop positions. This is largely due to strength south of the border. U.S. old crop soybean stocks are extremely tight and the Northern Midwest has been drained. Prices in Illinois and Ohio are sharp premium to Ontario values. 

Ontario stocks are also at historical lows. Domestic ethanol demand has gone quiet until new crop is available but there is still a certain amount of feed demand in the short term. Ontario prices need to stay just high enough to curb export movement. 

U.S. crop estimates are variable. The trade does not believe the U.S. average yield will reach the USDA estimate of 179.5 bushels per acre, which would be a record. Instead, most analysts are in the camp ranging from 172 to 177 bushels per acre. This would result in production of 370 to 380 million tonnes, down from the USDA projection of 385 million tonnes. 

U.S. corn out of the Gulf is discounted to Brazilian origin. The summer timeframe is usually when Brazil dominates the export market. However, this year is different due to the adverse Safrinha growing conditions. Brazil’s second corn crop was seeded a month later than normal. The late seeding was followed by below normal precipitation. Frosts in early July occurred during the key kernel filling stage.

Total Brazilian production (first and second crop combined) estimates range from 80 to 85 million tonnes, down from the July USDA estimate of 93 million tonnes and down from last year’s crop of 102 million tonnes. 

Ontario and U.S. farmers will be aggressive sellers at harvest due to the higher prices. The market will function to encourage demand during the first quarter of the crop year. Ontario corn will be priced to encourage exports. Europe has been the main destination for Ontario corn. Extensive rains in France and Germany have resulted in larger feed wheat production. 

We’re estimating that approximately 50 per cent of the Ontario wheat was feed quality, which will lower domestic feed demand for corn. These two factors are bearish for Ontario corn values. The bulk of the domestic feed wheat should be absorbed by the end of November. The U.S. has a large program to China for the fall period. Later in fall, we’re expecting China to step up additional coverage from U.S. origin. 

Domestic feed demand in the U.S. and Ontario makes seasonal highs during the winter. These two factors should result in firm prices during the January through March period. The market cannot afford a crop problem in South America next spring. 

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 on making our next sale at harvest. The U.S. crop size is still uncertain. Domestic feed and export demand improves later in winter. 

Wheat

We’re estimating that Ontario winter wheat production will finish in the range of 2.5 to 2.7 million tonnes, up from last year’s output of 2.3 million tonnes. Approximately 50 per cent or 1.3 million tonnes of winter wheat will be milling quality. 

This quantity should be sufficient to satisfy domestic demand. However, milling wheat prices will need to remain elevated to eliminate export potential. Farmers are selling feed quality into domestic channels at higher levels. Given the strong prices for corn, the discount for feed is minimal. 

The Canadian non-durum spring wheat crop is projected to finish in the range of 12.8 to 13.5 million tonnes, down from the 2020 output of 25.8 million tonnes. U.S. hard red spring wheat production is forecasted at 8.3 million tonnes, down from 14.4 million tonnes last year. Spring wheat supplies in North America will be historically tight, supporting milling wheat values in Ontario. 

U.S. hard red winter wheat prices have been percolating higher over the past month due to stronger domestic milling and export demand. Hard red winter wheat is now priced out of feed rations in the Southern Plains. 

Production is estimated at 22 million tonnes, up from 18 million tonnes last year. Despite the larger production, we’re looking for the 2021/22 carryout to drop sharply under the five-year average. The market needs to encourage acreage this fall. 

The French harvest was approximately 67 per cent complete as of Aug. 2, down from 97 per cent last year. Adverse rains have also delayed the German wheat harvest. We’re still getting a better handle on the quality situation but higher protein milling wheat supplies in Europe will be rather snug. EU soft wheat production is still expected to reach 127 million tonnes, up from 117 million tonnes last year. 

In Russia, acreage estimates have been lowered from earlier projections. Over the past couple weeks, we’ve seen dryer conditions develop in the spring wheat area. Winter kill was larger than anticipated in the center district and Volga Valley. Crop estimates are now coming in closer to 76 million tonnes, down from the USDA estimate of 85 million tonnes and down from the 2020 output of 86 million tonnes. 

The Ukraine wheat crop is unchanged from last month at 30 million tonnes, up from 25 million tonnes last year. China’s wheat quality is also uncertain at this stage because of the floods earlier in July. This will come out in the media over the next month. Keep in mind China’s main typhoon season is still ahead of us. The trailing effects of the 2020/21 food shortage continue to linger. They can’t afford a crop problem or any logistical constraints. 

What to do: We’ve advised farmers to be 100 per cent sold on old crop and 20 per cent sold on new crop. If you have feed quality wheat, sell the bulk of the volume now. You don’t want to sell feed wheat later when the corn harvest moves into full swing. The milling wheat market has a strong seasonal tendency to rally between mid-August and mid-October.


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About the author

Markets Analyst

Jerry Klassen is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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