From July 15 through Aug. 14, the Ontario growing region received 85 to 115 per cent of normal precipitation. Certain pockets northeast of Toronto received 150 to 200 per cent of normal rainfall.
Temperatures were 2 to 3 C below normal. Ontario corn and soybean crops continue to develop under optimal conditions so we’ve increased our production estimates.
Quick look
Soybeans: Export demand for U.S. and Ontario soybeans has improved for new crop positions and Ontario values are now competitive with U.S. offers.
Corn: The Ontario corn crop is projected to reach 10 to 10.2 million tonnes.
Wheat: Ontario wheat prices won’t rally until export demand incre ases.
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The winter wheat harvest is complete and we continue to project that one million tonnes will be feed quality. Domestic wheat millers are showing bids above export values in an effort to secure quality supplies.
The Ontario corn and soybean markets are functioning to encourage demand in the short term. Talk in the trade is that soybean and corn export interest has increased over the past couple of weeks.
The USDA August World Agriculture Supply and Demand Estimates (WASDE) report was considered neutral for corn and wheat. The report was considered constructive for soybeans due to the lower U.S. carryout projection for 2023-24.
U.S. corn offers out of the Gulf are now lower than Brazilian offers. U.S. soybean offers are competitive with Brazilian soybeans to certain destinations. We believe the corn market is in the process of making the seasonal low, while the soybean market will be volatile through harvest.
U.S. soft red winter wheat offers out of the Gulf are the lowest priced offers on the world market. Russia is the only exception. However, it’s becoming increasingly difficult for Russian wheat to trade out of Black Sea ports. Wheat markets are also in the process of making a seasonal low as the Northern Hemisphere winter wheat harvest wraps up.
The Canadian dollar has deteriorated against the U.S. greenback. Canadian economic output is expected to lag our neighbours south of the border. Canadian job growth has stalled for now, while U.S. employers continue to add positions.
Canadian inflation levels are lower than the U.S. We’re expecting the U.S. Federal Reserve to continue with interest rate increases while the Bank of Canada is expected to pause monetary tightening.
Soybeans
We’ve raised our Ontario soybean production from 4.1 million tonnes in July to 4.2-4.3 million tonnes in August. Farmer selling of old crop has subsided and producers are waiting harvest results before increasing new-crop commitments.
The trend in weather is cool and wet, which does not bode well for rapid harvest progress. Imports of U.S. soybeans for old crop positions has slowed and domestic crushers are focused on local supplies for new crop.
Favourable margins have encouraged the domestic crush pace. Offshore demand for October forward has increased as export offers are competitive with the U.S. and Brazilian origin. This market environment limits the downside for soybean prices although it would be presumptuous to say the seasonal low is in place.
At the time of writing this article, Brazilian soybeans were offered at US$530/tonne f.o.b. Paranagua, while U.S. soybeans were quoted at $545/tonne f.o.b. the Gulf. For October and November, U.S. soybeans are quoted at $525/tonne f.o.b. the Gulf. Export demand for U.S. and Ontario soybeans has improved for new crop positions. Ontario values are competitive with U.S. offers.
U.S. soybean ratings have increased over the past couple weeks. Timely rains have enhanced yield prospects during the key pod filling stage. The USDA is projecting a soybean crop of 114.5 million tonnes, down from the 2022 output of 116.4 million tonnes. We have adopted this production estimate.
Weekly crop ratings will now have less of an impact on market direction. The U.S. soybean carryout for 2023-24 is projected to come in at 6.7 million tonnes, down from the 2022-23 ending stocks of 7.8 million tonnes and down from the five-year average of 12.1 million tonnes.
Next spring, the U.S. soybean market will function to encourage acreage through higher prices.
Early soybean seeding begins in Matao Grosso and central Brazil in mid-September. Early soybean planting begins in central Argentina in October.
From September through October, the soybean market is void of production concerns and the focus is on demand. To reiterate from our previous issue, tighter U.S. fundamentals will make the soybean market more sensitive to South American production estimates from November through January. This is usually when the North American soybean market experiences a seasonal rally.
What to do: We’ve advised Ontario farmers to be 100 per cent sold on old crop and 20 per cent sold on their 2023 production. We’re planning our next sale in late October or early November, after North American harvest pressure has subsided.
Corn
We’re forecasting an Ontario corn carryout for the 2022-23 crop year to finish near 1.9 million tonnes, which is marginally higher than the five-year average of 1.8 million tonnes. We’ve increased our Ontario corn crop projection from 9.8-10 million tonnes in July to 10-10.2 million tonnes in August.
Total supplies at the start of the 2023-24 crop year are estimated at 12 million tonnes, up from the 2022-23 starting point of 11.5 million tonnes and up from the five-year average of 11 million tonnes. The corn crop has been developing under favourable conditions, which has caused farmers to liquidate old crop stocks.
Ontario cattle on feed inventories are at seasonal lows so the domestic market is dependent on export demand to set the price structure.
At the time of writing this article, Brazilian corn was quoted at US$215/tonne f.o.b. Paranagua while U.S. corn was valued at $205/tonne f.o.b. the Gulf. There were no firm French offers but a nominal value would be $245/tonne f.o.b. La Pallice. Ontario corn is offered at $205/tonne f.o.b. St. Lawrence port. Ontario corn is competitive into European destinations, which has tempered the downside in elevator bids.
The U.S. corn crop is in the final stages of development and crop ratings will have less of an influence on market direction. U.S. production was estimated at 384 million tonnes on the August WASDE report, up from the 2022 crop of 349 million tonnes and up from the five-year average of 365 million tonnes.
Without going into details of demand, the U.S carryout for the 2023-24 crop year was forecasted to reach 55.9 million tonnes, up from the 2022-23 ending stocks of 37 million tonnes and up from the five-year average of 45.2 million tonnes. A carryout above the five-year average will result in a market functioning to encourage demand.
Unless there is a problem in South America, the U.S. corn market will trade in a sideways range during fall and winter.
Corn planting begins in Southern Brazil and Northern Argentina in mid-September. Argentina has come through a major drought but recent rains have improved soil conditions for seeding. In Brazil, we expect a minor increase in soybean acres at the expense of corn, which may result in lower first crop corn production. Brazil’s second crop, known as the Safrinha production, produces the bulk of exportable surplus. This is harvested in June.
What to do: We’ve advised Ontario farmers to be 100 per cent sold on their 2022 production and 20 per cent sold on new crop. We will avoid sales recommendations during the North American harvest period.
The exportable surplus from Brazil will decrease later in fall. We’re planning our next sale in November. We’ll be monitoring South American crop development to time our third sale. Next spring, we’ll have an acreage battle between corn and soybeans due to the tighter soybean carryout. Our final sale will be determined on Brazil’s Safrinha harvest timing and North American crop development in the spring of 2024.
Wheat
Ontario wheat prices have fallen to three-year lows. Flour millers have been stepping forward during the harvest period to secure requirements for nearby and deferred positions. Export demand for Ontario wheat has been lacklustre at best.
U.S. demand for soft red winter has eased to the year-over-year increase in its domestic production. Mexico has also been on the sidelines for soft red winter as U.S. soft red is offered aggressively out of the Gulf.
There are not many homes now for Ontario wheat except for the domestic market. We continue to project that 700,000 tonnes of the Ontario wheat crop will be feed quality. Approximately one million tonnes will be used for domestic milling and one million tonnes will be available for export markets. Until the export demand steps forward, it will be difficult for Ontario wheat prices to rally.
Russia continues to export wheat at break-neck speed. However, rising insurance rates, escalating tensions and a backlog of vessels are all contributing to rising export prices. Russian wheat prices f.o.b. the Black Sea are now competitive with U.S. and French soft wheat.
In mid-August, U.S. soft red winter was offered at $245/tonne f.o.b. the Gulf while French soft wheat was valued at $250/tonne f.o.b. Rouen. Russian wheat with 12.5 per cent protein was quoted at $250/tonne f.o.b. Black Sea. Given current freight difficulties out of the Black Sea, we expect the world wheat market to percolate higher.
U.S. soft red winter wheat production is projected to reach 12.3 million tonnes, up from the 2022 output of 10.2 million tonnes. The year-over-year increase in U.S. soft red production will result in lower U.S. demand for Ontario origin.
U.S. offers have a rail or ocean freight advantage to Mexico and the Caribbean. If Egypt or North African countries run into difficulty sourcing Russian wheat, we may see some demand step forward for Ontario soft red but that’s a stretch at this stage.
What to do: We’re advising producers to hold back on sales. Wheat is one crop that farmers need to store. Our first sale will likely occur in October or November. Be patient in the short term.
