Ontario corn prices have been relatively flat since the end of harvest. Commercial ownership of corn is considered burdensome at this time. Ontario corn demand surges in the latter half of the crop year which should result in stronger basis levels.
Ontario soybean prices are trading near seven-month highs. Domestic crush margins have been enhanced due to historically strong soymeal prices. Commercial stocks of soybeans in Ontario are tightening. The Ontario wheat market appears to be percolating higher. Domestic flour millers appear to have sufficient ownership while export demand will increase during April and May.
Quick look
Soybeans: The soybean market will be very sensitive to weather.
Corn: Uncertainty in U.S., Brazilian, Ukrainian, Argentine and Chinese corn production could cause market volatility.
Wheat: A negotiation with the Black Sea Grain Initiative is needed.
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Brazil is on track to harvest a record soybean crop. The Brazilian soybean harvest was estimated at 17 per cent complete as of Feb. 14, down from 24 per cent last year. Farmers had planted approximately 25 per cent of the main Safrinha corn crop, down from the year-ago progress of 42 per cent. Argentine corn and soybean crops continue to experience adverse dry conditions and yields will likely be lowered on upcoming crop reports.
Argentina is the world’s largest soymeal exporter and the world soymeal market is trading near historical highs. The world coarse grain complex will likely incorporate a risk premium over the next month due to uncertainty in production in Ukraine, Brazil, Argentina, China and the U.S.
The world wheat market is focused on the Russian-Ukraine war. Russia has been dominating major tenders but this will come to an end in April. The U.S. hard red winter wheat region needs timely rains over the next couple of months. The main winter wheat regions in China are on the drier side as well.
The outlook for the Canadian dollar is neutral. The U.S. Federal Reserve will err on the side of raising interest rates too fast and too high to bring inflation down. Ideas are that the U.S. Federal Reserve will have to raise rates to seven to eight per cent to bring inflation down to their two per cent target.
The Bank of Canada was the first central bank to announce a pause on rate hikes. This divergence in monetary policy between Canada and the U.S. has resulted in a neutral outlook for the resource-based currency. Inflation on both sides of the border has potential to increase during the spring. Energy prices are poised to rally and a tight job market will keep wage inflation elevated.
Soybeans
On Dec. 31, Ontario farmers were holding 1.3 million tonnes of soybeans while commercial stocks were estimated at one million tonnes. Domestic demand during the first three months of 2023 is estimated at 160,000 tonnes per month or 480,000 tonnes. Ontario soybean exports from Jan. 1 through March 31 are estimated at 700,000 tonnes. Total demand is nearly 1.2 million tonnes.
The function of the market will be to pull stocks from farmers moving into March because commercial supplies will dwindle. During March through August, the domestic market will have to trade at a sharp premium to world values. The Ontario market will need to pull about 350,000 tonnes of soybeans from the U.S. to satisfy domestic Canadian crush requirements.
The Brazilian soybean harvest will progress in a timely fashion through March given current weather forecasts. Brazilian production estimates are ranging from 153-156 million tonnes, up from last year’s output of 130 million tonnes. The Brazilian market needs to encourage demand through lower prices. Brazilian export offers are US $40/tonne discount to U.S. origin.
Argentina continues to experience drier conditions but keep in mind the carryout from the previous crop year is sufficient to make up the shortfall in production. The world soymeal market appears to be strengthening on Argentine uncertainty. Argentine soybean exports will be minimal.
The July soybean futures have been trading at a $1.28/bu premium to the November contract. Given the larger Brazilian production, North American new crop prices are a sharp discount to the old crop. At this time, U.S. farmers are expected to plant 87 million acres of soybeans this spring, unchanged from last year. The market will be extremely sensitive to weather.
What to do: We have advised Ontario farmers to be 80 per cent sold on their old-crop soybeans. Barring adverse weather forecasts, we plan to make the final sale in April. This week, we are advising producers to sell their first 10-15 per cent increment of expected new crop production.
Corn
Ontario corn stocks as of Dec. 31 came in at 8.4 million tonnes. Farmers were holding 4.1 million tonnes and commercial ownership was 4.3 million tonnes. From Jan. 1 through March 31, domestic usage (feed, ethanol and food) is estimated at 1.3 million tonnes and exports will be around 150,000 tonnes. Total demand for the first three months of 2023 is estimated at 1.5 million tonnes.
Commercials can easily satisfy corn demand given their large ownership. Later in May, commercial stocks will tighten and the market will have to pull stocks from the farmer. Basis levels will improve. We are anticipating a surge in spring Ontario corn exports.
Brazil’s exportable corn surplus comes from the second crop known as the Safrinha production. This corn is planted after the soybean harvest. The crop is being planted about two weeks later than normal which makes it susceptible to seasonally hot and dry conditions during the main pollination period. The main Brazilian corn harvest will occur in mid-June.
Ukrainian corn acreage this year is uncertain due to the ongoing war with Russia. A larger portion of China’s corn area is also experiencing drier conditions. China’s corn planting is on the same schedule as North America but this is a major risk. China’s corn situation may be the sleeper surprise to the market this year. Argentina is priced out of the world market due to the tighter supplies.
The U.S. corn carryout for the 2022/23 crop year will come in sharply below the five-year average. The market needs to encourage acreage. Traders are factoring in a year-over-year increase of three to four million acres. Even with an acreage increase, the market will be very sensitive to yields. The weather trend points to a drier situation in the Western half of the corn belt in June and July. U.S. corn is more competitive than Brazilian origin for March through May positions.
French corn is offered at US $330/tonne f.o.b. La Pallice; Ontario corn is priced at US$280/tonne f.o.b. St. Lawrence port; U.S. corn is quoted at US$300/tonne f.o.b. the Gulf while Brazilian origin is valued at US$310/tonne f.o.b. Paranagua. Ontario corn exports will set the price structure to the domestic market during April and May.
The world corn market will incorporate a risk premium in April due to the uncertainty in U.S., Brazilian, Ukrainian, Argentine and Chinese corn production. The corn market has potential to be extremely volatile and could reach back up to historical highs in April or May.
What to do: We’ve advised farmers to be 50 per cent sold on old crop corn. We will sell remaining old crop stocks and make our first new crop recommendation in late April or early May.
Wheat
Ontario farmers were holding 390,000 tonnes of wheat on Dec. 31, down from the year-ago level of 470,000 tonnes. Ontario farmers delivered approximately 1.8 million tonnes into commercial positions in the first five months of the crop year. Domestic flour millers have the bulk of their old crop demand covered. The Ontario wheat market has breathing room to move higher now that farmer selling has eased.
Weather conditions have been favourable for Ontario and U.S. soft red winter wheat. Ontario farmers are expected to harvest 2.8 million tonnes of winter wheat this summer, up from last year’s output of 2.2 million tonnes.
U.S. farmers increased soft red winter wheat acreage by 20 per cent last fall. U.S. farmers are expected to harvest 12.2 million tonnes of soft red winter wheat this summer, up two million tonnes from the 2022 output. U.S. hard red winter wheat production is expected to finish near 26.0 million tonnes, up from the 2022 drought-stricken crop of 14.5 million tonnes. U.S. farmers will marginally increase hard red spring acreage. We are anticipating 12-13 million tonnes of hard red spring wheat production, compared to 12.2 million tonnes last year.
Western Saskatchewan has suffered from droughts two years in a row. Normal conditions are expected this year. Canadian hard red spring wheat output is expected to reach 36 million tonnes, up from 33.8 million tonnes last year.
In Europe, wheat production will rebound to about 142-145 million tonnes, up from the 2022 crop size of 135 million tonnes. Australian farmers will plant their winter wheat crop from April through June. A fourth bumper is expected. Farmers around the world have responded to the Russian-Ukraine war.
The Black Sea Grain Initiative comes to an end in mid-March. An extension needs to be negotiated. The Russian-Ukraine conflict is expected to escalate in March and April. Exports from the Black Sea region are uncertain for both old- and new-crop positions.
Russia and Ukraine production is expected to be down in 2023. Between the two countries, the year-over-year decline in production could reach 25-30 million tonnes.
What to do: Ontario wheat prices have rallied 50 cents/bu in February. This week, we’re advising farmers to sell an additional 20 per cent of their 2022 wheat production bringing total sales to 60 per cent. We have a two-month window to sell remaining 2022 stocks.
