During September, Ontario received average to below average precipitation while temperatures were slightly above average. This environment has allowed the corn and soybean crops to mature under optimal conditions.
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Soybeans: As the main importer, China has set the price on the world market.
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Corn: Argentine farmers are expected to decrease corn acres by 15 to 20 per cent this year.
Wheat: Adverse weather resulted in a reduced crop in Europe and Russia.
The Ontario soybean harvest was about five per cent complete as of Sept. 29. while the corn harvest will move into higher gear in mid-October. Farmer selling over the next couple months will cause corn and soybean basis levels to deteriorate as these markets function to encourage demand.
Soybeans
In our previous issue, we mentioned that Ontario soybean prices were in the process of making seasonal lows. Since then, elevator bids have strengthened by nearly 50 cents/bu. Strength in world prices have pulled up the domestic Ontario market. Elevator bids that load on export vessels are premium to the domestic crusher by nearly 25 cents/bu.
Farmer selling will fill the commercial pipeline over the next month. From Sept. 1 through Dec. 31, Ontario farmers are expected to deliver 3.4 million tonnes of a total crop size of 4.3 million tonnes. This environment has contributed to weaker elevator bids in the country system. Basis levels have depreciated as the operators anticipate the surge in farmer selling.
At the time of writing this article, U.S. soybeans were offered at US$427/tonne f.o.b. the Gulf, while Brazilian soybeans were quoted at US$443/tonne f.o.b. Paranagua. Argentine soybeans appear to be priced in line with Brazilian origin. Ontario soybeans are offered at US$427/tonne f.o.b. St. Lawrence port. We find U.S. and Ontario offers moving in tandem.
The USDA had production at 124.8 million tonnes on the August World Agricultural Supply and Demand Estimates (WASDE) report, up from last year’s crop of 113.4 million tonnes and up from the five-year average of 113.8 million tonnes. U.S. farmers will deliver about 75 per cent or 93 million tonnes of the crop into the commercial pipeline between Sept. 1 and Dec. 1.
Total demand for these three months includes 16 million tonnes for the domestic crush and 25 million tonnes of exports. The surge in producer deliveries over the next couple of months has allowed the U.S. to have the dominant position in the export market. Capacity in New Orleans is causing soybeans from the U.S. Northern Plains to be shipped from the Pacific Northwest.
U.S. domestic crushers will run near full capacity through fall due to favourable crush margins. The U.S. market is also functioning to push supplies offshore. The main importer has been China, which has set the price structure on the world market.
Brazil and Argentine markets are functioning to ration demand by trading at a premium to world values. Planting started in central Brazil during September and during October, farmers will be planting in central and southern Brazil. In a nutshell, planting is lagging behind last year’s pace due to drier conditions.
The bulk of the Argentine crop will be planted in November. Given the crush margin structure in Argentina, domestic crushers are paying a premium over world values, limiting the export movement.
What to do: We’ve advised farmers to be 20 per cent sold on their 2024 crop. We’re planning our next sale later in October, after the U.S. and Ontario harvest. The sale opportunity is after the U.S. harvest but before the main Brazilian harvest.
Corn
We’ve adopted Statistics Canada’s crop estimate of 9.6 million tonnes, down from the 2023 crop of 10 million tonnes but up from the five-year average of 9.2 million tonnes. Earlier in summer, there were optimal conditions for tar spot, which caused yield drag in certain counties.
Elevator bids are hovering around $5.20/bu., while ethanol processors are up to $5.75/bu. Most ethanol processors have their nearby requirements covered but have room for December forward. U.S. farmers will sell 6.5 million tonnes in the first four months of the crop year, while total demand is estimated at 3.4 million tonnes. There will be basis pressure.
In the U.S., production is expected to finish near 386 million tonnes, down from the 2023 record of 390 million tonnes but up from the five-year average of 365 million tonnes. Some analysts point to a crop similar to last year due to optimal growing conditions.
U.S. farmers will deliver about 50 per cent of the crop into the commercial system from Sept. 1 through Dec. 1. The corn market will function to encourage demand in the fall.
There is one main difference between the U.S. and Ontario fundamental structure. The bulk of U.S. exports occur in the first half of the crop year. For Ontario growers, the bulk of the exports occur in the latter half of the crop year.
U.S. corn demand peaks in December while demand for Ontario corn (export and domestic combined) peaks in April. Ontario corn basis levels tend to appreciate in the spring. Hopefully, this puts the market in perspective to understand the marketing strategy. Merchants often take information that’s common in the trade for granted but it’s not common knowledge among growers. In a normal year, you can’t sell the bulk of your crop in the fall to achieve a higher overall average price.
During the final week of September, U.S. corn was offered at US$207/tonne f.o.b. the Gulf while Brazilian corn was quoted at US$207/tonne f.o.b. Paranagua. French corn was offered at US$245/tonne f.o.b. La Pallice. Ontario corn is competitive into North European destinations, which may enhance demand in the first half of the crop year.
To reiterate from our previous issue, Argentine farmers are expected to decrease corn acres by 15 to 20 per cent this year due to leaf hoppers and disease issues. Brazil’s first corn crop, estimated around 25 million tonnes, is being planted under drier conditions. The second corn crop will only be planted in February and is estimated at 102 million tonnes. The U.S. needs to carry the world in corn until April.
For the 2024/25 crop year, ending stocks from the major exporters (Argentina, Brazil, Russia, South Africa, Ukraine excluding the U.S.) are expected to drop to seven million tonnes, down from the 2023/24 carryout of 9.75 million tonnes and down from the 2022/23 figure of 17.47 million tonnes.
The world cannot afford a crop problem next spring and summer. If there are drier conditions in the U.S., the corn market will incorporate a significant risk premium. This is our second reason to hold crop into the latter half of the crop year.
What to do: We’ve advised Ontario farmers to be 30 per cent sold on their 2024 corn production. Our next sale will occur in November after the U.S. and Ontario harvest and just prior to lakes freeze-up. Let the U.S. farmers sell their crop in the fall. Save your crop for spring.
Wheat
Ontario wheat prices have been consolidating around $6.50/bu. since making seasonal lows on Aug. 28 at $6/bu. The Ontario winter wheat crop is estimated at 2.5 million tonnes and farmers will sell about 70 per cent of the crop in the first five months of the crop year.
Crop year 2024/25 ending stocks for the major exporters, excluding the U.S. (Argentina, Australia, Canada, European Union, Russia and Ukraine) will drop to 29 million tonnes, down from the 2023/24 carryout of 38 million tonnes and down from the 2022/23 figure of 47 million tonnes.
Milling quality in Russia, Ukraine and Europe is also down from year-ago levels.
There is a “war-risk” premium developing in the wheat complex. The Russia and Ukraine war appears to be escalating with Ukrainian attacks inside Russia. Russian-Ukrainian exportable surplus will be down from year-ago levels due to the year-over-year decrease in production. We mentioned in our previous issue that the Ukraine may impose export restrictions.
Adverse rains plagued the Russian spring wheat harvest, resulting in lower milling quality supplies. In addition to lower production, actual milling quality is uncertain. Russian and Ukrainian farmers are currently planting winter wheat into drier conditions.
European production will also be down about 12 million tonnes from last year. France and Germany received adverse rains during harvest. Like Russia, European production is down from last year and the per cent of usable volume is also down sharply.
U.S. wheat export sales are running about 17 per cent ahead of last year. During the last week of September, Russian wheat was offered in the range of US$216-$220/tonne, while U.S. hard red winter was quoted at $268/tonne f.o.b. the Gulf. French soft wheat was valued at US$250 f.o.b. Rouen, while U.S. soft red winter was trading at US$257/tonne f.o.b. the Gulf.
We’re looking for Russian offers to increase later in the crop year. Next spring, we could see Russian offers evaporate if drier conditions continue over winter. Russia and Ukraine are also prone to droughts occasionally.
What to do: We’re advising Ontario producers with feed wheat quality to be 50 per cent sold on their 2024 production. This week, we’re advising Ontario farmers with milling quality to sell 10 per cent of their 2024 production. Export demand is stepping forward more aggressively and we want to sell into this strength. We’re going to hold the bulk of the crop until the latter half of the crop year. Strength in corn will underpin the wheat complex.
