At the end of September, Ontario farmers were in the early stages of the corn and soybean harvests. The corn harvest is 15 to 20 days behind normal and the soybean harvest is delayed 10 to 15 days from average. Ontario received above normal rainfall during July and August but September precipitation measured 40 to 60 per cent of average with some counties receiving less than 40 per cent. Temperatures were near normal for most of Ontario during September. Growing conditions were optimal during the summer. We’re expecting Statistics Canada’s final crop survey to show record yields.
Quick look
Soybeans: Ontario yields are expected to average 53 bu./acre, up from the five-year average of 49.2 bu./acre.
Corn: Production estimates for global exporters remain unchanged; U.S. production will be up from 2022 production but lower than anticipated.
Wheat: Larger U.S. production will limit Ontario exports south of the border.
Basis levels are under pressure across Ontario as merchants anticipate a bumper crop. Wheat values continue to hover near 52-week lows due to limited export demand. Ontario wheat is trading into domestic feed channels and the larger U.S. soft red winter crop is limiting demand from south of the border.
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The USDA released its Sept. 1 Grain Stocks and Small Grains Summary reports on Sept. 30. Corn stocks were lower than expected while soybean supplies were higher. The USDA raised its soft red winter and hard red winter production estimates.
South American farmers are in the early stages of planting corn and soybeans. Private trade estimates have Brazilian soybean acreage up from last year while corn acreage is marginally lower.
The world wheat market continues to be dominated by Russian exports. There has been a lack of transparency in Russian wheat prices as the war continues. The stocks-to-use ratio from major exporters is expected to fall to the second lowest on record. Eventually, Russia’s exports will slow because the export pace cannot continue longer term.
The Canadian dollar continues to trade in a long-term range of 73 to 75 U.S. cents. Economic growth is expected to slow in the final quarter of 2023 and first quarter of 2024. The Canadian economy has potential to move into contraction over the next three to six months.
Higher interest rates take 12 to 18 months to influence economic activity and the North American economies are feeling the effects of lower consumer spending. Weaker global growth will also weigh on the Canadian dollar.
Soybeans
We continue to project an Ontario soybean crop of 4.2 million tonnes. This up from last year’s crop size of four million tonnes and up from the five-year average output, which is also four million tonnes. Yields are expected to average 53 bu./acre compared to the five-year average of 49.2 bu./acre. Ontario soybean basis levels have been weakening as merchants anticipate a surge in farmer deliveries from October through December.
We’re forecasting that Ontario farmers will sell three million tonnes of soybeans during this three-month period. Domestic crusher bids appear to be in line with export values as the market functions to encourage demand.
At the time of writing this article, Brazilian soybeans were offered at US$502/tonne f.o.b. Paranagua, down $14/tonne from two weeks earlier. U.S. soybeans were valued at $515/tonne f.o.b. the Gulf, down $17/tonne from our previous issue. U.S. export sales will increase later in fall as U.S. soybeans are equal or at minor discount to Brazilian origin in the deferred positions.
Low water levels on the Mississippi may be supportive for U.S. export offers as there have been some problems moving supplies to export position. Brazil continues to dominate the world market. U.S. soybean export sales are running 34 per cent below year-ago levels. This is also a four-year low, to put the number in perspective.
The USDA’s Sept. 1 stocks report had all soybean stocks at 7.3 million tonnes. This was up from the September World Agricultural Supply and Demand Estimates of 6.7 million tonnes. This isn’t that significant, but it appeared to have a bearish influence on the market. There is more supply when the market is functioning to encourage demand.
The soybean complex will experience harvest pressure throughout September. Meal and soyoil values are also expected to trend lower as the domestic crush pace runs at higher levels. This will weigh on the crush margin structure in Canada and the U.S.
The upcoming Brazilian crop, which will be harvested in January, is expected to reach 163-165 million tonnes, up from the previous harvest of 156 million tonnes. In Argentina, it’s still very dry but it’s early in the season. The USDA has the Argentine crop at 48 million tonnes, up 23 million tonnes from this past spring.
Traders are monitoring planting conditions and there is a tendency for the market to incorporate a risk premium in November and December if dry conditions materialize. This will be the opportunity window for U.S. exports.
What to do: Our strategy is unchanged. We advised farmers to sell 20 per cent earlier in spring. Our next recommendation will occur after the harvest season.
Corn
We continue to project an Ontario corn crop of 10.1 million tonnes, up from last year’s crop size of 9.4 million tonnes and up from the five-year average of 9.2 million tonnes. If we add the expected carryout from the 2022-23 crop year, total supplies at the start of 2023-24 will be 12 million tonnes, up from the 11.5 million tonnes last year. In a normal year, farmers deliver nearly 50 per cent of their production into the elevator system between Sept. 1 and Dec. 31.
This year, we’re expecting farmers to sell five million tonnes from Sept. 1 to Dec. 31, causing commercial stocks to balloon. Domestic demand during the first four months of the crop year is only 2.7 million tonnes and exports are estimated at 0.5 million tonnes for a total demand of 3.2 million tonnes.
The bulk of U.S. corn export sales occur in the first half of the crop year. In Ontario, the bulk of the exports occur in the latter half because the major destination is Europe. In Europe, approximately 50 per cent of the wheat crop moves into feed channels and is a major factor driving the feed grain complex. This year, European wheat exports are down about 30 per cent due to the aggressive exports of Russian wheat. There is a backlog of wheat in the commercial system in Europe.
At the time if writing this article, French corn was offered at US$228/tonne f.o.b. La Pallice. Brazilian corn was quoted at US$226/tonne f.o.b. Paranagua. U.S. corn was quoted at $254/tonne f.o.b. the Gulf for November and December. Ontario corn was quoted at US$210/tonne f.o.b. St Lawrence port for November loading.
There are no major changes to production estimates from major exporters. U.S. corn production is expected to finish in the range of 377- 383 million tonnes, up from last year’s output of 349 million tonnes. The total Brazilian production forecast is estimated at 127 million tonnes. Brazil’s first corn crop is estimated at 25 million tonnes and the second crop which will be harvested in June 2024, is projected to be 123 million tonnes. This is down from the previous harvest of 137 million tonnes.
The USDA has Argentinean output at 54 million tonnes, up 20 million tonnes from the harvest this past spring. Argentina continues to contend with drought-like conditions so the market is skeptical about the higher USDA number.
What to do: We’ve advised Ontario farmers to be 20 per cent sold on their 2023 production. We believe the corn market is in the process of making seasonal lows. We’re planning to make our next sales recommendation in November, after the North American harvest.
There is potential for the corn market to incorporate a risk premium due to the uncertainty in South American production. The market is factoring in lower production from Brazil’s first corn crop. If Argentinean conditions don’t improve, we’ll see lower production estimates later in winter.
Wheat
We feel comfortable with an Ontario wheat production estimate of 2.6 million tonnes, up from the 2022 crop size of 2.2 million tonnes and up from the five-year average of 2.1 million tonnes. Of the 2.6 million tonnes of production, there is likely one million tonnes of feed quality.
Domestic demand is approximately one million tonnes and exports will likely finish around 0.5 million tonnes. Currently, the wheat price is low enough so feed and milling quality wheat are competitive into domestic feed channels. The downside risk is limited.
U.S. soft red winter wheat production is now estimated at 12.2 million tonnes. This is up from the USDA’s September estimate of 12 million tonnes and up from last year’s crop size of 9.17 million tonnes. Larger U.S. production will limit Ontario exports south of the border. Therefore, Ontario will need to price into other destinations such as Mexico or Central America.
There is a lack of transparency in the Russian wheat market. According to Reuters, the Russian government has not officially set a floor price; however, traders say indications for a floor price are given orally without formal written rules. The main point is that there is government intervention, which is causing havoc on the market. Secondly, many Western companies have exited Russia. This has contributed to the lack of transparency.
Russia has offered wheat donations to poor African states and it left the Black Sea Grain Initiative in July amid complaints that it was aiding wealthier countries in the purchase of Russian and Ukraine grains instead of helping poor African countries.
Supposedly, Russia is now donating wheat to poor African countries. This way, there can be no complaints about world food security due to the Russian invasion of Ukraine.
Russian wheat exports are record large so far in the 2023-24 crop year. The exportable surplus will dwindle over the winter. Government intervention in a market is a double-edged sword.
The stocks to use ratio from major exporters is the second lowest on record. The Southern Hemisphere exporters of Australia and Argentina continue to experience drier conditions, trimming crop estimates.
Once Russia pulls in the reins on exports, the wheat market has potential to surge. We’ll wake up one day and the futures will be limit up due to some unforeseen problem in Black Sea exports. A government program to force prices down will eventually snap back like an elastic band.
What to do: Our strategy is unchanged. Hold back on sales for the time being. If you have feed quality wheat, it’s prudent to move 20 to 30 per cent because the feed wheat market has limited upside with the larger corn crop.
