The ongoing Northern Hemisphere wheat harvest continues to pressure world wheat values. The North American weather premium in corn and soybean markets has evaporated due to optimal growing conditions.
Quick look
Soybeans: U.S. and Ontario soybean crops are developing under optimal conditions. North American prices are competitive with South American origin, limiting the downside.
Corn: Traders are factoring in record U.S. corn yields as the Brazilian Safrinha corn supplies come on the world market.
Wheat: U.S. winter wheat yields are better than expected, while drier conditions in Europe will also speed progress. The market has factored in the year-over-year decline in Russian production.
Soybeans
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Critical growing season ahead for soybeans
This year’s smaller soybean acreage puts the onus on yields, if last year’s supply is to be maintained. The most critical yield-determining month for U.S. soybeans is August.
We’ve trimmed our Ontario soybean production estimate from 4.2 million tonnes to the range of 3.9 to four million tonnes. This compares to last year’s output of four million tonnes.
There has been too much rain north of Toronto. Ontario planted acreage may be lower than expected and there will be yield drag on poorly developed plants. Later planting tends to result in below-average yields.
Ontario soybean basis levels for old crop have increased but there has been basis depreciation for new crop. We continue to project historically low on-farm stocks at the end of the 2023/24 crop year which is supportive for nearby price levels. Domestic crushers are showing stronger premiums for old crop and the market needs to attract imports.
For new crop, the risk premium due to the uncertainty in production appears to have eroded out of the cash basis. Producer selling of new crop is non-existent at this stage of the growing season but we expect further basis depreciation as we approach harvest.
The western half of the U.S. Midwest has experienced above average temperatures and above normal precipitation. The eastern half is also saturated but the crop appears to be developing under favourable conditions. The trade feels the USDA production estimate of 121 million tonnes for the 2024/25 crop year is too high and is probably closer to 115 -117 million tonnes. This is up from the 2023 output of 113.4 million tonnes and up from the five-year average figure of 113.8 million tonnes.
U.S soybeans out of the Gulf are competitive with South American origin now that the harvests are completed in both major producing countries. The focus of the soybean market is U.S. weather and yield development. We continue to see pressure on world meal and oil values.
Argentina is the largest exporter of soybean products and there is an aggressive push after the harvest period. On June 12, Brazil increased the tax on agriculture exports. Without going into detail, the Brazilian Congress needs to approve the tax beyond 120 days but in the short-term, it adds about US$15/tonne to export costs.
What to do: Ontario soybean prices are at 52 week lows. Earlier in spring we advised farmers to finish old crop sales and in the winter, we made our first 2024 sales recommendation. We plan to make our next sale shortly after the harvest period. The trade may start to factor in lower South American acres later in November.
Corn
Ontario corn basis for both old and new crop positions has marginally strengthened due to limited farmer selling and strong nearby demand. Ethanol margins continue to encourage the aggressive crush, while cattle on feed inventories are higher than anticipated due to the strike at the Guelph packing plant.
At the same time, farmer selling is down from year-ago levels due to the year-over-year decline in on-farm stocks. Ontario corn prices are hovering above world values as the domestic market functions to ration demand.
For new crop, we’re projecting Ontario corn production to finish near 9.8 million tonnes. This is up from last year’s output of 9.6 million tonnes and up from the five-year average of 9.2 million tonnes. Farmers are reluctant to sell new-crop corn until the upcoming production is more certain. There is still a fair amount of time before the North American crop is in the bin.
Corn futures have been under pressure due to optimal rains and timely planting. However, there are ideas that U.S. corn acres may be down from earlier projections.
Pollination season is still ahead and the trend in weather has been above normal temperatures for much of the growing region. The managed money also has a large short position on the futures market. A weather induced rally would result in major short covering.
We’re expecting severe volatility over the next month. This rally is considered a selling opportunity. Last year, the corn market rallied over $1/bu. during the growing season only to make fresh lows during the fall. We’re expecting a similar pattern over the next month.
The Argentine harvest is just over 50 per cent complete, while Brazilian farmers have taken off nearly 35 per cent of the Safrinha crop. South American offers are more aggressive than U.S. values out of the Gulf. During the North American harvest, U.S. offers will move in line with Brazilian origin, which will likely result in additional weakness in the North American market.
There are concerns over dryness in China. A large portion of the corn growing region experienced a very dry spring and Southeast Asia is bracing for above normal temperatures and below normal precipitation. If China starts buying corn during the summer, it is extremely bullish for new crop prices. In any case, we’re expecting China to be a major buyer of U.S. corn in the 2024/25 crop year.
What to do: We advised farmers to finish up old crop corn sales earlier in June. We’re expecting a weather related rally over the next month, which is a selling opportunity. Sell 20 per cent of expected 2024 production if the market rallies by 50 to 80 cents per bu. from current levels. This will start our new crop sales campaign.
Wheat
Ontario soft red winter wheat bids for August through October are at 52 week lows. We don’t expect much upside potential over the next three months. The U.S. winter wheat harvest is moving into the final stages. Yield reports are better than expected for hard red winter. We’re not hearing of significant disease issues in the U.S. soft red winter crop and traders have bumped up their production forecasts.
To reiterate from previous issues, the U.S. winter wheat farmer sells nearly half of their production in the summer months. Harvest may wind down later in July but there is still a fair amount of U.S. wheat to come into the commercial system.
In Europe, drier conditions have materialized in Germany and France over the past couple of weeks. The winter wheat harvest is in the early stages and quality reports are better than expected. Similar to the U.S. farmer, European producers move a large portion of their crop into commercial positions at harvest. This is when European millers fill up and then additional supplies need to move into export position.
There will be the usual logistical issues in Europe but after all the strikes and everything, wheat usually moves fairly smoothly. There is no problem with water levels on the rivers.
The Russian and Ukraine winter wheat harvests occur from mid-July through mid-August. Black Sea offers rallied through the spring but prices are now starting to trend lower again. World prices will continue to trend lower once the Russian harvest is in full swing. We could see Russian wheat trade into typical backyards for North American wheat such as Mexico, Central and South America.
It’s important to note that the Russian export program will taper off in the latter half of the 2024/25 crop year. Then there will be opportunities for Ontario wheat to trade into Mexico and the Caribbeans.
Similar to the corn, we’re watching the purchase behaviour of China and also India. India’s reserves have been depleted after three years of lower production. There is currently a 40 per cent tax on wheat imports but traders are expecting a reduction in the import duty later in winter. There is a strong policy goal to keep wheat prices low in India. Although the Chinese government has downplayed the lower production of wheat and corn, traders believe there is a serious problem with this year’s wheat crop.
What to do: Wheat is one crop that Ontario farmers need to store to achieve higher overall average prices. We don’t usually pre-sell wheat because of quality uncertainty. However, we don’t like to make sales recommendations between August and September because wheat prices make seasonal lows during the harvest period.
The seasonal fall rally from mid-September through mid-November could be more enhanced this year due to the problems in Russia and China. We’re going to start wheat sales later in fall. Don’t give your wheat away at harvest.
