Ontario corn, soybean and wheat prices are relatively unchanged from mid-March. Farmer selling tends to subside during late March and April as producers prepare for spring planting.
Export demand for corn has improved over the past two weeks. We expect a minor rally in domestic corn prices through April as offshore movement increases. Soybean prices have been supported by strong domestic crush margins. Commercial and on-farm soybean stocks are tightening.
Ontario has received 115 to 150 per cent of normal precipitation over the past two months and average temperatures have materialized. The winter wheat crop will come out of dormancy under optimal conditions. Winter kill will be limited and above average yields are expected. Strong competition from Russia has weighed on the global wheat complex.
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Quick look
Soybeans: On-farm stocks are expected to drop to historical lows at the end of the 2022-23 crop year.
Corn: Managed money contracts will be supportive of Ontario cash prices.
Wheat: Exporters will likely experience a rebuilding of stocks this year.
The Black Sea Grain Initiative has been extended without interruptions in Ukrainian or Russian exports. Comments from traders suggest the export corridor out of the Black Sea has been operating without significant delays. This has weighed on global wheat and coarse grain prices.
The European and U.S. winter wheat crops will come out of dormancy over the next month. The wheat futures markets tend to incorporate a risk premium due to uncertainty in production.
As of March 14, Brazilian farmers had harvested nearly 55 per cent of the soybean crop. Planting of Brazil’s main second corn crop known as the safrinha production is in the final stages. Argentine corn and soybean estimates continue to decline as the worst drought in 60 years trims yields prospects.
The USDA will release its acreage estimates for the 2023 season on March 31. This is the most important USDA report for the year.
The Canadian dollar has a neutral outlook. U.S. banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven’t been sold yet) at the end of 2022. This could be the start of another financial crisis.
The Canadian and U.S. economies will feel the effects of interest rate hikes in the latter half of 2023. Consumers are bound to rein in spending, which will stall economic growth prospects. This will limit appreciation against the greenback for the resource-based currency.
Commodity prices are expected to trend lower in the summer. Copper and crude oil are leading the decline as global growth slows.
Soybeans
The Ontario soybean market is functioning to encourage farmer selling and ration demand. On-farm stocks are expected to drop to historical lows at the end of the 2022-23 crop year. Ontario export values will remain above world prices to cut off exports.
Imports from the U.S. are expected to increase. We don’t expect to see a slowdown in the domestic crush pace, which will keep prices elevated during April. After April and May, the soybean market will likely trend lower if the crop is developing under favourable circumstances.
Keep in mind the Canadian and U.S. crushers take downtime for maintenance and upgrades during the summer.
U.S. and Ontario exports will slow over the next month as the record Brazilian soybean harvest wraps up. At the time of writing this article, U.S. and Ontario soybean values in export position were nearly US$50/tonne premium to Brazilian offers f.o.b. Paranagua.
Brazilian crop forecasts continue to hover in the range of 153-156 million tonnes, up 23-26 million tonnes from last year. Argentine output will drop to 33 million tonnes, down 10 million tonnes from last year. This may alter trade flows for meal more than soybeans because Argentina is world’s largest meal exporter and only exports about three million tonnes of soybeans.
Traders expect U.S. farmers to plant 87.5-88.5 million acres of soybeans this spring. This compares to last year’s acreage of 87.5 million acres. A year-over-year increase in acreage would be bearish for the soybean market. Ontario soybean acreage came in around 3.05 million. This compares to 3.08 million acres last year and the five-year average of three million.
What to do: We’re advising farmers to sell their final 20 per cent increment of the 2022 production, bringing total sales to 100 per cent. We’re advising farmers to be 15 per cent sold on expected new crop production.
Corn
The corn market is heavily influenced by managed money. On Feb. 20, the managed money was long 217,290 contracts. Over the next couple weeks, the managed money liquidated 201,693 contracts. On March 6, the managed money was net long only 15,597 contracts.
While the managed money was selling, the commercial short position went from 424,938 to 256,695 contracts. Managed money selling and commercial buying characterizes a bearish market. The problem during this time was that the Commodity Futures Trading Commission had a technical issue and delayed reporting the positions. Over the next month, we expect the managed money to build its long futures position back to 200,000 contracts, which will be supportive to Ontario cash prices.
Ontario corn exports from Sept. 1 through Dec. 31, 2022 were 452,400 tonnes. From Jan. 1 through March 31, exports are expected to be only 100,000 tonnes, bringing the crop year-to-date number 552,400 tonnes.
Ontario exports from March 31 through May 30 could reach up to one million tonnes, bringing the year-to-date exports to 1.552 million tonnes. The downside in the market is limited over the next two months due to strong export demand.
The Ontario market will need to encourage farmer selling through April and the first half of May. This demand comes when farmers are planting and road bans are in place. Keep in mind cattle on feed inventories tend to make a seasonal high in late April, resulting in stronger domestic demand.
Brazilian farmers will harvest their safrinha production in June. Export offers from Brazil will dominate the world market from June through October. This will cut off exports from Ontario during the summer. Ontario cattle on feed inventories are at seasonal lows during July and August.
Traders are expecting a year-over-year increase in U.S. corn acres of two to four million. U.S. production is expected to finish in the range of 380-385 million tonnes, up from the 2022 output of 349 million tonnes. Barring adverse weather, the U.S. and Ontario corn market will trend lower from June through August.
What to do: We’re advising farmers to sell 10 per cent of their 2022 production, bringing total sales to 80 per cent. We’re also recommending that producers sell their first 20 per cent increment of expected 2023 production.
Wheat
On the Chicago wheat futures, the managed money was net short 74,200 contracts on Feb. 20. On March 6, the net short was 103,132 contracts. Over this two-week period, the managed money sold 28,932 contracts. This is the shortest position since January 2018. Commercials were net buyers through this two-week period but were only net long 6,284 contracts on March 6.
Commercial buying and managed money selling is bearish for wheat prices. In corn we expect the managed money to be net buyers through the spring period. In Chicago wheat, the managed money could build the short position to 150,000 contracts, barring adverse weather. The fund selling isn’t necessarily over in the wheat complex.
The extension of the Black Sea Grain Initiative was bearish for North American and European wheat prices. We now find wheat offers from major exports have aligned with Russian offers. On March 16, Russian wheat was quoted in the range of US$270-$280/tonne f.o.b. Black Sea; French wheat was valued $293 f.o.b. Rouen while U.S. soft red winter was quoted at $299/tonne f.o.b. the Gulf. Ontario soft red winter valued at $285/tonne f.o.b. St. Lawrence port.
The wheat market tends to experience a minor rally when the Northern Hemisphere winter wheat crop comes out of dormancy. This year, the rally will be limited due to the aggressive nature of Russian wheat offers. Secondly, current weather forecasts are favourable for European and U.S. winter wheat. The U.S. Southern Plains receives seasonal rains during April every year. Major exporters will experience a rebuilding of stocks this year. In Western Canada, traders are anticipating a two to five per cent year-over-year increase in hard red spring wheat acres.
The year-over-year increase in European and U.S. production eliminates concern over decreases in Ukraine and Argentina. Russia wheat production will also decrease from last year but it’s hard to forecast the extent of the decline. It’s still early in the season and it will depend on Russian spring wheat production as well.
What to do: We’ve advised farmers to be 80 per cent sold on their 2022 production. We’re planning to make our next and final sales recommendation in April. European and U.S. farmers sell nearly 50 per cent of their production in the summer months. Don’t expect a rally in the wheat market now that the Black Sea Initiative has been extended.
