Winter wheat harvest is expected to be a week or more ahead of normal
Over the past 30 days, Ontario has experienced normal temperatures. However, precipitation has been variable. The bulk of the region between Toronto and Ottawa has received less than 60 per cent of normal precipitation. A large pocket around Ottawa has received less than 40 per cent of average rainfall. West and south of Toronto, rainfall has been in the range of 60 to 150 per cent of normal.
Soybeans: Ontario old-crop soybean prices continue to trend lower due to limited demand.
Corn: Prices are expected to trend lower over the next three months, and exports will likely slow down during the summer.
Wheat: Ontario winter wheat is forecasted to be above last year's output of 2.3 million tonnes.
Within a 10-mile radius, there can be a significant difference in crop development because of the variable precipitation. At this stage, we continue to project five-year average yields for Ontario. Timely rains are needed over the next few weeks or yield drag will occur on the corn and soybean crops. Ontario winter wheat has headed out and harvest is expected to occur seven to 10 days ahead of normal. Corn and soybean crops are developing in line with the five-year average.
Corn and soybean futures have been trending lower after seeding. As of June 13, the U.S. corn crop was rated 68 per cent good to excellent, compared to 71 per cent last year. The soybean crop was rated 62 per cent good to excellent, compared to 72 per cent at the same time of 2020.
USDA will release its updated acreage estimates on June 30. We're looking for U.S. corn and soybean acreage to come in above the March survey. U.S. export demand has slowed for corn and soybeans.
South American origin is most competitive on the world market until October or November. Brazil's Safrinha corn harvest is in the early stages while Argentinian farmers have harvested about 50 per cent of the corn crop. The U.S. hard red winter wheat harvest will move into high gear in the latter half of June. Early yield reports are impressive and we could see records broken this year.
Europe, Ukraine and Russian wheat crops are developing under favourable conditions. Western Canada and North Dakota have received timely rains. The Biden administration is in the process of revising U.S. biofuel blending mandates. This is negative for the corn and soybean markets.
The Canadian dollar continues to trade in a range of 82 U.S. cents to 83.35 U.S. cents. We're looking for temporary weakness in the Canadian U.S. exchange rate through the summer. Longer term, we continue to have a bullish bias on the resource-based Canadian dollar. U.S. crude oil stocks are tightening, which is causing energy values to percolate higher. Prices of lumber, metals, grains, oilseeds and energies are above year-ago levels as the U.S. and world economies move through a major expansionary phase.
Ontario old-crop soybean prices continue to trend lower amid a limited demand scenario for the remainder of the crop year. We may see soybean stocks at the end of the 2020-21 crop year come in larger than earlier anticipated.
Soybean exports for 2020-21 were earlier anticipated to reach 4.6 million tonnes but this may be optimistic. Canadian crop year-to-date exports for the week ending June 6 were only 3.6 million tonnes. Ontario soybeans continue to trade at a sharp premium to U.S. and Brazilian origin, limiting offshore movement so it may be difficult to reach this projection.
USDA will release its June acreage survey at the end of the month. We're expecting soybean acres to come in at 89 million, up from the previous March estimate of 87.6 million and up from the 2020 planted area of 83.1 million. Using a trend yield of 50.8 bushels per acre, the crop size will likely finish near 122 million tonnes, up from the 2020 output of 113 million tonnes.
Without going into details of demand, the U.S. carryout for the 2021-22 crop year is expected to finish near six million tonnes, up from the 2020-21 ending stocks of 3.7 million tonnes. Unless we see a yield problem, the upside potential from current levels will be limited. We're going to see fairly aggressive farmer selling in the first half of the 2021-22 crop year.
USDA made no significant changes to South American production on the June WASDE report. Brazilian soybean production is projected to reach 137 million tonnes, up from 129 million tonnes last year. Argentine output was estimated at 47 million tonnes, down from the year-ago output of 49 million tonnes. Chinese import demand was left at 19 million tonnes, down from the 2020-21 imports of 19.6 million.
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 have a bearish outlook for the soybean market moving into the harvest period. Timely rains are needed for the soybean crop north of Toronto so we're not advising additional sales until the crop is more certain.
Ontario corn prices have been hovering near historical highs. However, prices are expected to trend lower over the next three months for four main reasons. Domestic feed demand is at seasonal lows during the summer months.
On top of the lower demand, we're going to see wheat aggressively trade into feed channels once the harvest begins in July. Secondly, Brazil's second crop corn harvest moved into full swing in the latter half of June. Basis levels in South America have weakened. Ontario corn exports have been running above expectations but will likely slowdown during the summer.
Thirdly, demand from Europe will decline as the winter wheat harvest moves into full swing in the U.K., France and Germany. Ireland and Spain have been the main destinations for Ontario corn. Wheat will substitute corn once the harvest is in full swing.
Finally, the U.S. corn fundamentals are bearish moving into new-crop positions. We're looking for U.S. corn acres to come in around 94 million tonnes on the June 30 acreage data. Using an average yield of 175 bushels per acre, U.S. corn production has potential to reach 384 million tonnes, up from the 2020 crop size of 360 million tonnes. The five-year average output is 363 million tonnes. Unless we see a crop problem, the market will struggle to trade higher.
U.S. ethanol demand is uncertain for the 2021-22 crop year. According to Reuters, the Biden administration is under pressure from union leaders and senators to ease biofuel blending mandates. This is a serious issue for the corn market because changes would significantly alter the demand scenario.
We mentioned in the previous issue that Chinese corn import demand was uncertain. China is coming off a food shortage. The Chinese hog herd is expected to expand over the next year. Finally, China is also expanding ethanol production to lower greenhouse gas emissions.
USDA has Chinese import demand at 26 million tonnes for the 2021-22 crop year, unchanged from 2020-21. We wouldn't be surprised if Chinese demand reached more than 30 million tonnes.
What to do: We've advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. The market is going to be under pressure at harvest but we're expecting a similar price pattern in 2021-22 as in 2020-21. Timely rains are needed for the Ontario corn crop.
Ontario wheat prices have been trending lower after making seasonal highs in late April. Domestic flour millers appear to be well covered until new crop positions. Export demand has also slowed.
The main factor underpinning the Ontario wheat market is domestic feed demand. However, it's hard to get a handle on how much wheat is actually moving into feed channels despite the discount to corn. We continue to forecast Ontario winter wheat production at 2.3 to 2.5 million tonnes, up from last year's output of 2.3 million tonnes.
USDA estimated U.S. soft red winter wheat production at 9.1 million tonnes, up from the 2020 output of 7.2 million. After two years of historically tight carryouts, we're going to see a building of U.S soft red winter wheat stocks in the 2021-22 crop year.
This should cause Chicago wheat futures to trade a traditional discount to Kansas City wheat futures. U.S. hard red winter wheat production was estimated at 21 million tonnes by USDA, up from the 2020 crop size of 17.9 million. Early yield reports suggest the hard red winter crop could reach up to 24 million tonnes.
Europe has experienced greenhouse conditions after the frosts in April. European wheat production is expected to reach 137.5 million tonnes, up from 125.9 million last year. The Ukraine wheat crop was estimated at 29.5 million tonnes, up from the 2020 crop of 25.4 million. Russian output was forecasted to reach 86 million tonnes, unchanged from year-ago levels.
There are no problems with the Northern Hemisphere wheat crop. Timely rains have enhanced yield prospects for spring wheat in Canada and the U.S. but production will finish below last year due to a year-over-year decline in acreage.
Canadian non-durum spring wheat is expected to finish near 23.1 million tonnes, down 2.7 million from 2020. U.S. hard red spring wheat will drop to 13 million tonnes, down 1.4 million from last year's output.
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 continue to have a bearish outlook on the soft red winter market due to a year-over-year increase in Northern Hemisphere winter wheat production. Tight corn stocks will support the wheat complex until September. Once the U.S. corn harvest begins, we'll see corn displace wheat in the feed channels in the U.S.