The Ontario growing region received normal precipitation during August and temperatures were also in line with the seasonal averages. Statistics Canada released its first model-based production estimate and Ontario yields were above average for corn, soybeans and wheat. The wheat market is expected to make a seasonal low in the latter half of September.
Corn and soybean prices are expected to bottom out during the first half of October. Farmer selling of corn and soybeans will surge during the harvest period, resulting in softer basis levels in Ontario. There is potential for interior prices to divorce from world values during the harvest period. Ontario flour millers have the bulk of nearby demand for wheat covered. Export values are setting the market structure for Ontario wheat prices.
Quick look
Soybeans: China will continue to have lower import demand for the next six months.
Corn: Expect a sharp increase in exports of Ontario corn to Europe and greater demand for ethanol production.
Wheat: The Ontario market is now focused on export demand.
Read Also
Scouting advised for soybean aphids
Soybean aphids have been spotted in a few fields in southern Ontario that haven’t seen soybean aphids in quite a…
Corn futures rallied nearly 60 cents/bushel during August as the market incorporated a risk premium due to uncertainty in U.S. yields. The drought in Europe has caused French corn prices to increase by 15 per cent, which will enhance export demand for Ontario corn.
Soybean futures were relatively flat during August as favourable weather occurred during the main pod setting phase for the U.S. soybean crop. Brazil and Argentina corn and soybeans are more competitive on f.o.b. basis for nearby positions. The price structure changes for November as U.S. soybeans and corn supplies will dominate world trade after the North American harvest. The reopening of certain Ukrainian Black Sea ports and Northern Hemisphere harvest pressure has soft red winter wheat prices down from last month.
The Canadian dollar dipped below 76 U.S. cents on Sept. 1. The “risk-off” sentiment remains intact. Global growth prospects have deteriorated, resulting in a sell-off of the resource-based currency. The fresh Chinese COVID-19 lockdown of Chengdu comes on the heels of disappointing Chinese economic data. Energy rationing in Europe will hinder economic growth for the group of 27 countries.
Earlier in summer, back stage negotiations between Ukraine and Russia showed promise. Despite the resumption of Ukraine grain exports, it now looks like this conflict will drag on well into 2023. North American inflation data continues to grind lower but remains near historical highs. The Bank of Canada and the U.S. Federal Reserve will continue to raise their benchmark lending rates until the end of 2022.
The release of petroleum reserves will end in October. We’re advising farmers and feedlots to have at least a three- to four-month supply of fuel stored on farm. U.S. crude oil stocks are nearing historical lows. This is a major risk to the North American economy over the winter.
Soybeans
Statistics Canada estimated the Ontario soybean crop at 4.1 million tonnes, down marginally from our estimate of 4.2 million tonnes and virtually unchanged from the 2021 output. The five-year average soybean production in Ontario is 3.9 million tonnes.
The weaker Canadian dollar has been supportive for basis levels, while the futures are relatively unchanged from 30 days earlier. August and September are periods of seasonal low demand for Ontario soybeans. Domestic crushers take downtime for maintenance and upgrades and tend to switch over to canola during the early western Canadian harvest.
Domestic use and exports for Ontario soybeans increase during October. We’re forecasting a year-over-year increase in Ontario soybean exports to Europe and potentially North Africa.
During the 2021-22 crop year, the soybean crush was largely driven by the oil component of the margin structure, rather than meal. This will continue for the 2022-23 crop year. Biodiesel prices could skyrocket over the winter once the crude oil release comes to an end.
China’s economy is struggling with weaker consumer spending, a collapsing real estate market and ongoing COVID lockdowns. The world’s largest soybean importer will have lower soybean import demand over the next six months. Depending on their economy, soybean demand may not improve next spring.
Farmers need to keep close tabs on the Chinese situation. In this economic environment, China will experience an increase in soybean oil imports rather than actual soybeans. Chinese meal demand tends to suffer.
U.S. farmers increased soybean acres this spring and we continue to project a crop size of 123 to 124 million tonnes, up from last year’s crop of 120.7 million tonnes. U.S. farmer selling off the combine will be more intense this year for soybeans.
What to do: Earlier in spring, we advised Ontario producers to forward sell 20 per cent of their expected 2022 production. We’re planning to make our next sale in November. The U.S. harvest will be wrapped up and we’ll have a better idea of the South American weather forecast. Energy prices are expected to jump sharply once the U.S. crude oil release ends in October.
Corn
Statistics Canada’s model-based crop estimate had the Ontario corn crop at 9.8 million tonnes, up from the 2021 output of 9.5 million tonnes and up from the five-year average production of 8.9 million tonnes. To reiterate from our previous issue, producer selling will increase over the next month as harvest moves into full swing. There are three main factors that will influence the Ontario corn market during the fall period. It will function to encourage export demand in the first half of the 2022-23 crop year.
Total European corn production estimates range from 55 to 59 million tonnes, down from the 2021 output of 72.7 million tonnes. French corn output is only expected to reach 11.7 million tonnes, down from 15.5 million tonnes last year. French corn prices rallied about 15 per cent during August. Export values are now quoted at US$338/tonne f.o.b. La Pallice.
Ontario corn was valued at US$295/tonne f.o.b. St. Lawrence. Ontario corn has a competitive edge into Ireland, the United Kingdom and other smaller European ports. We’re projecting a sharp increase in Ontario corn exports to Europe in the 2021-22 crop year.
We’re expecting ethanol demand to increase later in October. The U.S. will end its release of crude oil reserves in October. Despite the global economic slowdown, energy demand remains strong in North America. This will result in stronger ethanol demand later in fall and winter, which will enhance demand for Ontario corn.
The cattle market is expected to trend higher over the winter and into spring. Ontario cattle producers will be encouraged to increase feed inventories, which will result in a year-over-year increase in feed use.
The strength in crude oil will also cause speculative money to flow into corn futures. As of Aug. 30, the managed money long on the corn futures was 205,288 contracts. We’re looking for this speculative money to build a long up to 370,000 contracts over the winter.
What to do: We’ve advised producers to be 20 per cent sold on their 2022 production. Our sales strategy is unchanged. We’re planning to make our next sales recommendation in November. Contrary to the soybean situation, producers will want to sell the bulk of their corn production in the latter half of the crop year to maximize profitability.
Wheat
Ontario farmers harvested two million tonnes of winter wheat this summer, down from the 2021 crop size of 2.7 million tonnes and down from the five-year average of 2.1 million tonnes. Farmers have been active sellers through the harvest period and domestic millers appear to be well covered for their nearby requirements. The crop came off without any adverse weather. The volume moving into feed channels is negligible. Therefore, the Ontario market is focused on export demand.
The Northern Hemisphere winter wheat harvest has been completed. Russian production is estimated at 90 million tonnes, up 15 million from the 2021 crop. Traders have French soft wheat production at 33.9 million tonnes, down marginally from 35.5 million last year.
U.S. hard red winter wheat production is 15.7 million tonnes, down from 20.4 million last year. U.S. soft red winter wheat production is estimated at 10.4 million tonnes, up from the year-ago output of 9.8 million. U.S. hard red spring wheat production is estimated at 12.6 million tonnes, up from 2021 crop of 8.1 million. Canadian non-durum spring wheat production is expected to finish at 25.6 million tonnes, up from 16.2 million last year.
It’s important that farmers have an idea of world prices relative to current production estimates. As of Sept. 2, French soft wheat was quoted at US$335/tonne f.o.b. Rouen or La Pallice; U.S. No.2 hard red winter wheat 12 per cent protein was quoted at US$391/tonne f.o.b. the Gulf; U.S. hard red spring 14 per cent protein was quoted at US$411/tonne f.o.b. Portland while Canadian No.1 CWRS 13.5 protein was also US$410/tonne f.o.b. Vancouver.
Russian wheat 12.5 per cent protein was quoted at US$315/tonne f.o.b. Black Sea. A nominal value for Ontario soft red winter was US$325/tonne. Ontario wheat has a competitive edge into offshore North and Central American destinations such as Mexico. U.S. millers are also well covered for their nearby requirements.
The North American market for hard red winter wheat is rationing demand due to tighter supplies this year. The world market needs to absorb the exportable surplus from France and Russia in the short term. Overhanging world values are new-crop Australian wheat offers.
What to do: We’ve advised Ontario farmers to be 10 per cent sold on their winter wheat. Our strategy is to increase sales later in October or November. There is a strong seasonal tendency for the wheat market to rally from mid-September through October.
