Less demand means soybeans to hit seasonal low from now to October

Chinese demand for corn will be a large and unknown factor for the 2021 crop

Ontario’s corn crop is up and growing, although some was recently hit by frost.

Ontario farmers were in the final stage of planting corn and soybeans during the last week of May. The region between Toronto and Windsor has received less than 40 per cent of normal precipitation over the past 30 days; cropping area north of Toronto has received 40 to 60 per cent of normal precipitation. 

Timely rains are needed to sustain yield potential. As of June 1, there was limited precipitation in the 30-day forecast for the Ontario growing region. We continue to forecast average type yields. Weather over the next 30-45 days will be critical for crop development. This will have a large influence on basis levels for the 2021-22 crop year. 

Quick look
Soybeans: Ontario soybean production is projected to finish near 4.1 million tonnes. 
Corn: The U.S. could have a record corn crop, expected to reach 389 million tonnes.|
Wheat: The Ontario wheat crop is rated in better condition than a year ago.

As of June 1, U.S. farmers were nearly finished planting corn and soybeans. The U.S. Northern Plains remain on the dryer side while the Midwest has received normal to above normal precipitation over the past couple weeks. Recent rains have slowed harvest progress in Argentina. Farmers in Argentina have harvested 31 per cent of the corn crop compared to last year’s pace of nearly 50 per cent. The Argentine soybean harvest is in the final stages at 92 per cent complete. 

The Brazilian soybean harvest finished in early April. A large portion of Brazil’s Safrinha growing region has received less than 40 per cent of normal precipitation over the past 60 days. However, recent light rains have prevented corn from further deterioration. The main Safrinha harvest will begin in late-June. Above average yields are expected for the U.S. hard red winter wheat crop and the harvest will be in high gear by month-end. 

Northern Hemisphere winter wheat crops are in excellent condition. Western Canada received timely rains during the third week of May, however, North Dakota continues to experience drought-like conditions. 

Ontario farmers should have new crop sales on the books for 15 per cent to 20 per cent of expected production. The year-over-year increase in U.S. corn, soybean and winter wheat crops will result in price weakness during the harvest period. 

The Canadian dollar has traded in a narrow range over the past couple weeks. Support has been at the $82.30 U.S. level while resistance surfaces at the psychological $83 U.S. area. Canadian monetary policy has been rather hawkish compared to the U.S. Federal Reserve. There are comments that suggest U.S. monetary policy is not as dovish as earlier anticipated. We have a neutral outlook for the Canadian dollar through the summer months. The expanding U.S. and world economies will continue to drive demand for commodities but the monetary policy changes from the U.S. Federal Reserve could temper the upside for the resource-based currency. 

Soybeans

The Ontario soybean market continues to ration demand by trading at a premium to world values. Without going into detail, Ontario soybeans out of the St. Lawrence River are nearly US$50 per tonne premium to Brazilian soybeans. Ontario soybean exports basically came to a halt in late March. There has been minimal offshore movement throughout April and May due to strong competition from South America. The domestic Ontario market has been setting the price structure. 

To reiterate from our previous issue, Ontario and U.S. processors will be taking their downtime for maintenance and upgrades later in summer. U.S. domestic prices in the northern states have been premium to Ontario values thereby limiting imports from south of the border. U.S. and Canadian stocks will drop to bin bottom levels at the end of the crop year. Demand moves through a seasonal low for Ontario and U.S. soybeans from now until October. This will cause the market to trend lower through July and the first half of August. 

Argentina is the world’s largest soymeal exporter and will dominate the world market until the fall period. At the same time, Brazil is the most competitive origin for soybeans. At the time of writing this article, weather forecasts were favorable for the U.S. Midwest while the Northern Plains remain on the dryer side. China’s main province of Heilongjiang is also experiencing optimal conditions; however, China’s demand is expected to increase in the next crop year due to its expanding hog inventory. 

Ontario soybean production is projected to finish near 4.1 million tonnes, up from the 2020 output of 3.9 million tonnes and up from the five-year average crop size of 3.8 million tonnes. Europe has been the main destination for Ontario soybeans for the 2020/21 crop year. We’re expecting an increase in European biodiesel demand and a marginal increase in the hog herd, which will underpin Ontario new crop soybean prices. 

What to do: We’ve advised Ontario farmers to be 100 per cent sold on old crop and 20 per cent sold on new crop. Given the adverse dry conditions in Ontario, we’re not advising additional new crop sales at this time. 

Corn

The Ontario corn market continues to ration demand through higher prices as stocks will drop to historical low levels at the end of the 2021/22 crop year. At the end of May, elevator bids for corn for June and July delivery were hovering around $8.30/bushel while new crop wheat prices were hovering around $7.50/bushel. Winter wheat will aggressively trade into feed channels during the harvest period. The Ontario winter wheat crop is developing seven to 10 days ahead of normal. 

Ontario exporters are currently executing previously made sales but fresh export demand is rather quiet. Offshore movement will slow moving forward as South America dominates the world market. Domestic ethanol demand will be the main factor setting the Ontario price structure for the remainder of the year. Once processors have their requirements covered, the market will come under pressure. 

U.S. corn acres came in at 91.1 million on the March seeding intentions survey, however, trade estimates suggest that U.S. seeded area will be in the range of 94 to 95 million acres on the June 30 report. We’re expecting U.S. corn production to reach 389 million tonnes, which is about eight million tonnes above the May USDA estimate. This could be a record U.S. corn crop. There is potential for U.S. corn trade into southern Ontario in the first half of the crop year. 

Chinese demand for corn is uncertain, but we’re anticipating a year-over-year increase in Chinese corn imports. This is where we differ with the USDA. The expanding hog inventory along with growing ethanol processing will likely result in a year-over-year increase in Chinese demand. China has stepped forward for new crop fairly aggressively and there is no signal this buying will subside. Keep in mind it takes more than one year to replenish stocks from a food shortage. 

Total Brazilian corn production will likely finish in the range of 91-94 million tonnes, down from the USDA estimate of 102 million tonnes and down from last year’s crop, which was also 102 million tonnes. The trade is comfortable with an Argentine crop size of 47, down from year-ago output of 51 million tonnes. The main point is the crop size of South America is factored into the market. It’s not getting smaller. 

What to do: We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. If you need to move stocks at harvest, it’s prudent to have some sales on the books. There is a large U.S. crop coming off in the fall period. At the same time, Ontario domestic and export demand is at seasonal lows from August through October. Wheat will aggressively move into feed channels from now through October. 

Wheat

Cooler temperatures in Ontario have offset the dryer conditions over the past month. We’re not hearing of any yield drag on the winter wheat crop. We’re now rating the Ontario winter wheat crop at 70 per cent good to excellent, down from the rating of 73 per cent in the previous issue but up from the year-ago reading of 60 per cent. There is no change to our production estimate which is in the range of 2.3 – 2.5 million tonnes, up from the year-ago output of 2.3 million tonnes. 

Private trade estimates for U.S. and European winter wheat crops are larger than earlier projections. The trade believes U.S. hard red winter average yield will finish at a record high of 59 bushels per acre resulting in a crop size of 28 million tonnes. 

This is up from the USDA estimate of 19.8 million tonnes. We also believe that U.S. soft red winter wheat production will finish near 9.5 million tonnes, up from the USDA estimate of of nine million tonnes and up from the 2020 output of 7.2 million tonnes. European non-durum wheat production is projected to reach 131 million tonnes, which is up from our previous estimate of 127 million tonnes, and up from the 2020 crop size of 117 .2 million tonnes. At this time, there is no change to our Russian and Ukraine crop estimates.

Russia’s wheat output is estimated at 85 million tonnes, unchanged from last year. Ukraine output is estimated at 29 million tonnes, up four million tonnes from the crop of 2020. Timely rains occurred in Western Canada and North Dakota in the latter during the third week of May. There is a fair amount of uncertainty regarding yield potential and weather over the next 30 days will be critical for Western Canada and North Dakota wheat crops. 

Remember, U.S. hard red winter wheat farmers sell nearly 50 per cent of their production during the summer months. Russian and Ukraine farmers also sell large volumes during and immediately after harvest. Winter wheat prices are expected to remain under pressure through the summer period. 

What to do: We’ve advised producers to be 100 per cent sold on old crop. In the previous issue, we advised producers to sell their first 20 per cent increment of new crop. We’re bearish on soft red winter wheat prices moving forward; however, the spring wheat has potential to experience a bounce if adverse conditions continue in North Dakota and Saskatchewan.

About the author

Markets Analyst

Jerry Klassen

Jerry Klassen is the manager of Canadian operations for Swiss-based grain trading house GAP SA Grains & Products.

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