During July, the region west of Toronto received 150-200 per cent of normal precipitation. North and east of Toronto, farmers received 115-150 per cent of normal rainfall with isolated pockets along the border receiving 150-200 per cent.
Temperatures have been normal to three degrees cooler than normal. Conditions have been favourable for corn and soybean development. The winter wheat harvest is in the final stages. We’re getting a better handle on quality parameters and the percentage that will have to move into the domestic feed market. Winer wheat yields have been above average in most cases.
Quick look
Soybeans: A lower soybean production estimate will result in a U.S. carryout of four to five million tonnes for the 2023-24 crop year.
Corn: Both U.S. and Canadian corn yields will reach above five-year averages.
Wheat: Russian wheat is cheaper and of comparable quality to North American wheat, making it harder for North American wheat to compete globally.
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During June and July, the corn futures market incorporated a risk premium due to uncertainty in U.S. production. This premium is now coming out of the corn market as yield estimates come in higher than earlier projected. At the time of writing this article, soybean futures remain elevated because drier conditions in June appeared to temper yield potential.
The year-over-year decline in U.S. soybean acres has made the market more sensitive to yield projections. Brazilian corn and soybean offers continue to be more competitive than U.S. origin.
The wheat market is making seasonal lows. Russia continues to export wheat at a rapid pace. Ukraine wheat production will likely finish higher than earlier estimates but export volumes are uncertain.
Job and wage growth continues to drive core inflation. The U.S. Federal Reserve is set on loosening the labour market through higher interest rates. U.S. and Canadian GDP figures are coming in higher than expected and the North American economy appears to be poised for a “soft landing.” Higher interest rates may slow growth and temper inflation but recessionary fears have abated.
U.S. crude oil inventories continue to hover at historical lows. There is potential for overall inflation to increase later as energy prices are expected to trade higher. Stronger biofuel values are supportive for corn and soybean prices longer term.
Soybeans
We continue to project an Ontario soybean crop of four to 4.1 million tonnes. This is unchanged from last year and up from the five-year average of 3.9 million tonnes. Farmers have been liquidating old crop stocks over the past month and on-farm supplies at the end of the crop year will drop to historical low levels.
The summer period is typically when imports from the U.S. increase. Domestic crusher bids have been high enough to attract imports from just south of the border. Nearby export offers for Ontario soybeans are above world values. The marketing is functioning to encourage demand for new crop positions as export offers are competitive with other major exporters.
At the time of writing this article, Brazilian soybeans were quoted at US$543/tonne f.o.b. Paranagua while U.S. soybeans were valued at $560/tonne f.o.b. the Gulf. Later in fall, North American soybeans will be more competitive than Brazilian origin. For November, a nominal value for U.S. soybeans is $530/tonne f.o.b. the Gulf.
Ontario export prices for new crop are in line with U.S. offers. Export buyers have been stepping forward more aggressively for October forward, limiting the downside in new-crop prices. For example, U.S. export sales for the week ending July 27 for the 2023-24 crop year were 2.3 million tonnes. The market will not fall apart when there is this type of demand.
Our U.S. soybean production estimate remains at 106 million tonnes, down from the USDA’s July estimate of 117 million tonnes and down from the five-year average of 114 million tonnes. The lower soybean production estimate will result in a U.S. carryout of four to five million tonnes for the 2023-24 crop year. This is down from the five-year average ending stocks around 12 million tonnes.
The lower U.S. soybean carryout will make the market extremely sensitive to South American production estimates during fall and winter. At this stage, the market is factoring in a minor year-over-year increase in Argentinian and Brazilian production but these crops will only be planted in the fall. The market cannot afford a crop problem in South America.
To reiterate from the previous issue, the U.S. soybean market will function to ration demand by limiting exports in the April through August period of 2024. In a typical year, this is when Ontario imports the bulk of the U.S. soybean volume. U.S. soybean farmers usually sell approximately 70 per cent of their production by Dec. 31. This is one crop year when we could see higher prices in the spring.
What to do: We’ve advised farmers to be 20 per cent sold on expected 2023 production. Our next recommendation will occur during November after the U.S. soybean harvest is wrapped up and demand for North American soybeans is at a seasonal high.
Corn
We’re projecting an Ontario corn crop of 9.8-10 million tonnes, up from the 2022 crop size of 9.4 million tonnes and up from the five-year average of nine million tonnes. Ontario cattle on feed inventories dip to annual lows in August and September. Export demand for old crop has been limited. European buyers are expected to step forward later in August or September for new crop positions.
The Ontario corn market is making seasonal lows. Avoid selling corn at this time.
At the time of writing this article in early August, Brazilian corn was offered at US$206/tonne f.o.b. Paranagua, down $24/tonne from mid-July. U.S. corn was quoted at $223/tonne f.o.b. the Gulf, down $17/tonne from 14 days earlier. French corn was valued at $275/tonne f.o.b. La Pallice, unchanged from two weeks ago.
French corn production is estimated at 11 million tonnes, up from 10.8 million last year but down from the 2021 output of 15.5 million tonnes. This is the second year in a row for lower production.
We continue to project a year-over-year increase in European demand for Ontario corn during October through December. Keep in mind Ontario cattle on feed numbers make seasonal highs in December and January. The next seasonal peak in domestic demand occurs in April and May.
We’ve increased our U.S. corn production estimate from 366 million tonnes to 381 million tonnes. This is up from the 2022 crop size of 349 million tonnes and up from the five-year average of 365 million tonnes. The U.S. corn market is functioning to encourage export demand during the first half of the 2023-24 crop year.
Ukraine corn production is projected to reach 25 million tonnes, down only two million tonnes from last year. Ukraine exports are uncertain for 2023-24 as Russia did not renew the Black Sea Grain Initiative on July 18. During the 2022-23 crop year, China bought approximately 11 million tonnes of Ukrainian corn. We may see additional demand from China for U.S. corn later in fall.
Argentina experienced a drought, resulting in lower corn production, while Brazil has wrapped the harvest of its record output. For the 2023-24 crop year, farmers in Argentina and Brazil will be encouraged to plant soybeans rather than corn.
Next spring, Argentina is expected to harvest 54 million tonnes of corn, up nearly 20 million tonnes from this past year. Brazilian output is expected to finish near 129 million tonnes, which is a year-over-year decrease of four million tonnes. Remember, the bulk of the exportable surplus from Brazil only comes on the market in June and July.
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. Be patient to make additional sales. Seasonal strong demand for Ontario corn will occur in November and December.
Wheat
The Ontario winter wheat harvest is moving into the final stage. We continue to project a crop size of 2.541 million tonnes, up from last year’s output of 2.227 million tonnes and up from the five-year average of 2.1 million tonnes.
We’re projecting that 700,000 tonnes of the Ontario wheat crop will be feed quality. This leaves one million tonnes for domestic use and 800,000 tonnes for export. Domestic millers have stepped up purchases to cover their 2023-24 requirements.
Export demand is a struggle. The wheat market makes seasonal lows in July and August due to Northern Hemisphere harvest pressure.
When I worked in the grain trade, we always told commercial importers to purchase their upcoming crop year requirements at the end of July or the first half of August. In most years, this is when the wheat futures are at annual lows and basis levels are the weakest.
If millers needed 5,000 tonnes of Canadian wheat per month, we advised booking the whole volume for each month in late July or first half of August. Obviously, we’re telling farmers to avoid wheat sales during July and August.
Russia continues to export wheat at a rapid pace. July 2023 exports were up 60 per cent compared to July 2022. Russian wheat is actively trading into North Africa, Middle East, Brazil, Peru and Bangladesh. Russian exports are influencing all major markets.
A South American miller told me they bought Russian wheat in past years because it was lower priced. Now it’s lower priced and equal quality to Canadian and U.S. origin, which makes it hard for North American wheat to compete.
According to the USDA, Russian exports for 2023-24 are projected to reach 47.5 million tonnes, up from the 2022-23 exports of 45.5 million tonnes. Russian wheat exports will be front-loaded, moving the bulk of the volume by the end December. Russian selling pressure is expected to ease in the latter half of the 2023-24 crop year.
In the previous issue, we mentioned the exportable surplus from Australia, the U.S. and Canda will be down from last year. Argentina and Europe will have a minor increase in production but ending stocks for 2023-24 are expected to be down from 2022-23.
Once the Russian export push ends, the market will have breathing room to move higher. We don’t know how these geopolitical issues will play out and wheat prices can jump sharply in a short time.
What to do: We’ll start our sales recommendations for wheat in October or November. Avoid selling at the lows off the combine.