Ontario cash corn prices dropped nearly 50 cents per bushel, on average, between Feb. 21 and March 7, while soft red winter wheat values fell by approximately 75 cents per bushel.
Cereal grains have come under pressure due to a lack of export demand. Ethanol processors and cattle feeders appear to have sufficient corn coverage for now. Domestic flour millers have sufficient coverage until new crop supplies are available.
The Ontario winter wheat crop will come out of dormancy under favourable conditions and seven to 10 days sooner than normal.
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Ontario temperatures have been three to five degrees C above normal over the past month. Ontario soybean prices are relatively unchanged from last month. Domestic soybean demand appears to be sufficient to sustain the price structure as stocks will drop to historical lows at the end of the crop year.
Quick look
Soybeans: The market will need to trade high enough to encourage farmer selling.
Corn: Delayed planting in Brazil will widen the window for export competitiveness for Ontario corn.
Wheat: Anticipation over an extension to the Black Sea initiative has put pressure on the global market.
A press release from China’s Ministry of Foreign Affairs, titled “China’s Position on the Political Settlement of the Ukraine Crisis”, noted the importance of maintaining the Black Sea Grain Initiative. Russia is relying on ongoing political support from China. This report from China appears to have calmed traders’ concerns and market uncertainty regarding corn and wheat exports from Black Sea ports.
Russian cooperation to extend the deal beyond March 18 is a foregone conclusion. This has set a negative tone for world wheat and corn values. The war risk premium in the market due to uncertainty in Black Sea exports has evaporated.
The Brazilian soybean harvest is nearing the half-way mark. Brazilian farmers had planted 45 per cent of the Safrinha corn crop as of March 7. Argentine corn and soybean production estimates continue to decline due ongoing drought-like conditions.
Canadian economic growth stalled in the fourth quarter of 2022 and inflation continues to decline. This provides justification for the Bank of Canada to pause interest rate hikes in the short term.
The U.S. Federal Reserve will increase its policy rate by 25 basis points on March 22 and again on May 3. The divergence in monetary policy between the two central banks is considered neutral to negative for the Canadian dollar.
Soybeans
For the first quarter of 2023, we haven’t changed our domestic demand projection but we have lowered our export forecast. On Dec. 31, 2022, soybean stocks on farm were 1.3 million tonnes and commercial stocks were estimated at one million tonnes. From Jan. 1 through March 31, 2023, domestic usage is expected to total 480,000 tonnes.
Our export projection has been lowered from 700,000 tonnes to 500,000 tonnes for the first quarter. Total demand is expected to finish near one million tonnes. Despite the lower export projection, the market will need to trade high enough to encourage farmer selling. This will keep Ontario soybean prices well supported into the spring.
At the time of writing this article, Brazilian soybeans were offered at US$556/tonne f.o.b. Paranagua, while U.S. soybeans were valued at $600/tonne f.o.b. the Gulf. Ontario soybeans were quoted in the range of $585-$590/tonne f.o.b. St Lawrence port. The Canadian and U.S. soybean market is rationing demand due to tighter stocks.
The Brazilian soybean harvest was 40 per cent complete as of March 7. Yields are coming in as expected and production estimates range from 153-156 million tonnes, up from last year’s crop of 130 million tonnes.
Trade estimates now have the Argentine soybean crop in the range of 35-38 million tonnes, down from the USDA projection of 41 million tonnes and down from last year’s output of 44 million tonnes. The USDA Agriculture Outlook forum was held Feb. 23-24. Its first estimate for this year’s 2023 soybean crop came in at 123 million tonnes, up five million tonnes from the 2022 output.
What to do: We’ve advised farmers to be 80 per cent sold on old crop and 10 to 15 per cent sold on expected new crop. The domestic crush pace is expected to decline in the summer months. Barring adverse weather, the U.S. soybean market will soften after planting and drag the Canadian market lower.
Corn
The fundamentals for Ontario corn are somewhat bearish in the short term. In the last issue, we mentioned that commercial ownership was 4.3 million tonnes as of Dec. 31, 2022, while farmers held 4.1 million tonnes. Domestic demand from Jan. 1 through March 31 was estimated at 1.3 million tonnes while exports were projected to be 150,000 tones.
Ethanol demand may be lower than earlier projected, while export movement has been limited. Commercials have sufficient supplies to cover domestic usage. We continue to project a surge in exports in April and May. At that time, the market will need to function to encourage farmer selling as commercial stocks decline.
At the time of writing this article, Brazilian corn was offered at $293/tonne f.o.b. Paranagua, while U.S. corn was quoted at $290/tonne f.o.b. the Gulf. U.S. corn is competitive on the world market, which will limit the downside. French corn was quoted at $315/tonne f.o.b. La Pallice. Ontario corn is competitive into Northern European destinations. This will limit the downside in Ontario elevator bids. In Europe, 30 per cent of the wheat production trades into compound feed rations. The wheat market has more of an influence on European feed values.
Brazil’s first corn crop was estimated at 25 million tonnes. The second crop, known as the Safrinha, is expected to reach 100-102 million tonnes. Planting is delayed by approximately two weeks due to wet conditions.
The main harvest is expected to occur in the latter half of June. This will widen the window for U.S. and Ontario export competitiveness. Total Brazilian production is estimated at 125-127 million tonnes, up from 116 million tonnes last year.
The Argentine crop is expected to finish in the range of 38-40 million tonnes, down from 49 million tonnes last year.
The USDA estimated 2023 corn production at 383 million tonnes at its Agriculture Outlook Forum. This is up from the 2022 output of 349 million tonnes and up from the five-year average of 365 million tonnes.
In my previous article, we said the market was expected to incorporate a risk premium due to uncertainty in Brazilian and U.S. production. The year-over-year increase in new crop supplies has set a negative tone to old crop prices. The market has shrugged off this production uncertainty.
Ukraine corn exports will dry up later in summer but the psychological effect of ongoing trade from the Black Sea has contributed to the softer tone. China bought an estimated three million tonnes of Ukraine corn in the 2022-23 crop year.
What to do: This week, we are advising producers to sell an additional 20 per cent of their 2022 corn production, bringing total sales to 70 per cent. It is prudent to increase sales. If favourable planting and growing conditions materialize, the market will remain under pressure. If adverse weather develops, we still have 30 per cent to take advantage of any price strength.
Wheat
The world wheat market has come under pressure as traders anticipate an extension to the Black Sea Grain Initiative. The current agreement ends March 18 and negotiations have begun to extend the initiative another 120 days. Political pressure from China on Russia to maintain Ukraine exports has calmed traders’ fears.
Russian wheat has been dominating tenders from North Africa and the Middle East. Russia harvested a wheat crop over 100 million tonnes in 2022, up 25 million tonnes from 2021. Russia has a fair amount of wheat to move over the next three months prior to North American new crop coming on stream.
As of March 3, French milling wheat was quoted at $300/tonne f.o.b. Rouen and U.S. soft red winter was offered at $300/tonne f.o.b. the Gulf. U.S. hard red winter was quoted at $370/tonne f.o.b. the Gulf. Russian wheat was sub-$300/tonne f.o.b. Black Sea port.
In a normal year, Russian wheat exports would slow down late in the crop year. This spring, we see that the slower export pace in the first half of the crop year has made Russian exports back-end heavy. The year-over-year increase in production has also enhanced Russian competitiveness in the latter half of the crop year.
U.S. hard red winter wheat production is expected to finish near 26 million tonnes, up from the 2022 crop of 14.5 million tonnes. U.S. soft red winter wheat production is expected to reach 12.2 million tonnes, up two million tonnes from last year.
U.S. farmers sell nearly 50 per cent of their winter wheat in the summer months. There are concerns about U.S. hard red winter wheat conditions. It’s important to note that seasonal rains occur in Kansas during April. Conditions are expected to improve, not deteriorate from current levels.
Ontario winter wheat output has potential to finish near 2.8 million tonnes, up from the year-ago crop of 2.2 million tonnes. We are expecting a 10-12 million tonne year-over-year increase in European production.
What to do: This week, we’re advising producers to sell an additional 20 per cent of their 2022 production, bringing total sales to 80 per cent. Last year, the market experienced a significant rally in the spring. This year, there is no fear in the market and the year-over-year increase in North American supplies will overhang old crop values.
