Ontario soybean prices have been relatively flat over the past month but corn prices are down 40 to 50 cents per bushel from October highs. Harvest selling pressure is ending now that harvest has wrapped up across the province.
Soybean crush margins continue to hover near historical highs. Values from domestic crushers are higher than export values, limiting soybean exports. Domestic demand for corn is improving as cattle on feed inventories increase throughout the fall. Cattle feeding margins appear to be favourable for the winter period. The corn market has been functioning to encourage demand and exports are exceeding year-ago levels.
Quick look
Soybeans: Basis levels are expected to strengthen.
Corn: Domestic export and feed demand has increased.
Wheat: The wheat market is likely to have a major rally in late winter or early spring, similar to the rally in March of 2022.
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Ontario soft red winter wheat prices are down nearly 50 cents per bu. from the first week of November. This is largely currency related as wheat exports are also above last year. Domestic flour millers have their nearby demand covered given the large volume of farmer selling in the first half of the crop year.
The U.S. corn and soybean harvests are completed and yields are better than expected. The U.S. Department of Agriculture marginally increased the 2022-23 U.S. corn and soybean carryouts on the November World Agriculture Supply and Demand Estimates report. U.S. corn export sales are sharply lagging year-ago levels while soybean sales are slightly below last year.
As of Nov. 13, Brazilian farmers had planted nearly 55 per cent of the soybeans and 60 per cent of the first corn crop. Argentine farmers had planted almost 25 per cent of the corn crop and soybean planting is in the early stages. Longer-term weather forecast lean to the drier side for Argentina and Brazil. Planting has been completed for the Northern Hemisphere winter wheat crop. The world wheat market remains sensitive to export developments out of the Black Sea region.
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The December Canadian dollar dipped to a seasonal low of US71.56 cents on Oct. 13. The resource based currency closed at 75.51 cents on Nov. 11. The U.S. dollar has come under severe pressure due to easing inflation. The U.S. Labor Department reported that the Consumer Price Index for October came in at 7.7 per cent, down from the September reading of 8.2 per cent. There has been massive selling of the U.S. dollar against all major currencies. This has weighed on Ontario wheat and corn prices, which have been dependent on export demand throughout fall.
Soybeans
Ontario soybean prices appear to be making seasonal lows and are poised to move higher over the next month. Farmer selling pressure has eased now that harvest is done. Domestic crush margins are near record highs and export demand is improving. These two factors should result in stronger basis levels.
Soybean bids just south of the border have been equivalent to Ontario prices. U.S. soybeans are not trading into Ontario. Soyoil prices have been trending higher as diesel stocks are at historical lows. The biodiesel component has been a main factor driving the crush margin structure. U.S. and Canadian soymeal demand is also strong and domestic prices are higher than export values.
As of Nov. 11, U.S. soybeans were quoted at US$611/tonne f.o.b. the Gulf, while Brazilian soybeans were valued at $617/tonne f.o.b. Paranagua. Ontario soybeans were priced at $580/tonne f.o.b. St. Lawrence port.
Price competition on the world market will keep Ontario elevator bids well supported. Strong demand has been noted from Europe, North Africa and the Middle East.
The USDA estimated U.S. soybean yields at 50.2 bu./acre on the November WASDE report, up from the previous month’s projection of 49.8 bu./acre. Production is now expected to finish near 118.3 million tonnes, down marginally from the 2021 output of 121.5 million tonnes and up from the five-year average of 115 million tonnes.
The Brazilian crop that will be harvested in March 2023 is projected to reach 152 million tonnes, up from the previous harvest of 127 million tonnes. Argentine soybean production is forecasted at 49.5 million tonnes, which would be a year-over-year increase of 5.5 million tonnes.
China has been the main buyer of U.S. soybeans throughout the fall. Despite COVID lockdowns and social constraints, demand has held up better than expected.
What to do: We had advised Ontario farmers to be 50 per cent sold on their 2022 production. The January/March 2023 soybean futures spread was trading at an eight cents/bu. carry on Oct. 31. This spread narrowed to 3.75 cents/bu. on Nov. 11. The futures markets spreads have narrowed, which is a bullish signal. It is early in the South American growing season. North American stocks are tightening. We are monitoring South American crop development, which will determine the timing of our next sales recommendation.
Corn
Ontario corn production has the potential to reach 10 million tonnes, up from the five-year average of 8.9 million tonnes. Producers are expected to deliver 6.5 million tonnes into the commercial system from Sept. 1 through Dec. 31. Total domestic and export demand is forecasted to be 3.8 million tonnes during the same time.
Ontario corn prices are down 50 cents/bu. from October highs as commercial stocks balloon. Ontario corn exports are improving now that harvest is done. Domestic feed demand is also increasing as more feeder cattle are placed in feedlots.
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Ethanol production has been disappointing but we expect this segment of demand will improve over the winter. U.S. crude oil stocks are at dangerously low levels and energy demand will increase in January through March. We believe there is potential for crude oil prices to reach historical highs in March.
During mid-November, U.S. corn was quoted at $338/tonne f.o.b. the Gulf, down $30/tonne from Nov. 1. Brazilian corn was valued at $295/tonne f.o.b. Paranagua, unchanged from two weeks earlier. French corn was quoted at $350/tonne, also unchanged from early November. Ontario corn was quoted at $290/tonne f.o.b. St. Lawrence port. A nominal value for Ukraine corn would be $265/tonne f.o.b. the Black Sea.
For the week ending Nov. 6, Canadian crop year-to-date corn exports were 737,100 tonnes, up 55,000 tonnes from the same period last year. The Ontario market is encouraging demand.
In past years, the U.S. and Ukraine were the main suppliers of corn to China due to phytosanitary agreements. This changed in May 2022 when Brazilian and Chinese officials agreed on phytosanitary standards to allow Brazilian exports to China.
The USDA is expecting U.S. corn production to come in near 353.8 million tonnes, down 30 million tonnes from last year and down 10 million tonnes from the five-year average. The U.S. domestic corn market has been rationing demand away from export channels.
Brazil harvests two main corn crops. The first is approximately 26 million tonnes and occurs in March 2023. The second corn harvest, which could reach 100 million tonnes, occurs in June 2023. Total Brazilian corn output is expected to reach 126 million tonnes, which would be a year-over-year increase of 10 million tonnes. The Argentine corn harvest is expected to finish near 55 million tonnes, up 3.5 million tonnes from last year.
What to do: We have advised Ontario farmers to be 20 per cent sold on their 2022 production. The March/May futures spread continues to trade at even money. This is a bullish signal for the spring period. The U.S. corn market will function to encourage acreage next spring.
Secondly, the world corn market tends to strengthen when the main Brazilian crop moves through pollination. Thirdly, we are still bullish on the crude oil market and a major rally in the energy complex will lift corn values. Finally, Ontario corn basis levels are expected to strengthen later in winter after Ontario farmers liquidate the bulk of their supplies. We are being patient to make additional sales given the current environment.
Wheat
Ontario elevator bids for soft red winter wheat have come under pressure in recent weeks. Domestic flour millers in the U.S. and Canada appear to be well covered for nearby requirements. Therefore, elevator bids are dependent on export demand.
At the time of writing this article in mid-November, U.S. soft red winter was quoted at $361/tonne f.o.b. the Gulf. French soft wheat was valued at $340/tonne. A nominal value for Ontario soft red winter wheat would be $320/tonne f.o.b. St. Lawrence. A nominal value for Ukraine and Russian wheat 11.5 per cent protein would be $300/tonne f.o.b. Black Sea.
Traders are watching negotiations regarding the Black Sea export safety corridor, which will influence Russian and Ukraine exports over winter. The current agreement ends Nov. 19. The western sanctions on Russia do not specifically target wheat exports. However, the sanctions do target other aspects of shipping including freight, insurance and financing or payment of cargoes.
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Moscow has voiced frustration with its ability to export wheat and fertilizer given the sanctions and is demanding some concessions on sanctions in return for agreeing to ongoing exports. The Russian Ukraine war is far from over.
Russia’s wheat crop was a record 100 million tonnes and exports are sharply lagging year-ago levels. If Russian demands are met, Russian wheat will saturate world demand. Major world buyers are working down to their last kernel in anticipation of this agreement. Our view is that the West will not agree to lift any sanctions on financing or insurance.
What to do: We have advised Ontario farmers to be 30 per cent sold on their 2022 wheat production. Our view is that there will be a major rally in the wheat market in late winter or early spring, similar to the rally in March of 2022. If the West does lift sanctions to ease Russian exports, the world wheat market tends to incorporate a risk premium when the Northern Hemisphere winter wheat comes out of dormancy. The key for wheat marketing is to make regular incremental sales throughout the year. No one can predict with accuracy how the market will develop.
