Ontario corn and soybean prices made fresh 52-week highs in early April while elevator wheat bids have dropped 40 cents per bushel from the February peak.
Soybeans: Ontario soybean production is expected to be up in 2021 versus 2020.
Corn: Crude oil’s increase is helping to underpin corn price.
Wheat: Timely rains will be needed to sustain wheat yields in Ontario.
The markets are starting to focus on upcoming production. The United States Department of Agriculture’s acreage survey was considered bullish for corn and soybeans but bearish for wheat.
U.S. farmers intend to plant 91.1 million acres of corn and 87.6 million acres of soybeans. Both numbers were below pre-report trade estimates.
U.S. winter wheat acres were up nine per cent from year-ago levels. The U.S. winter wheat crop is developing under favourable conditions and seasonal rains are in the forecast.
Ontario corn, soybean and wheat stocks are expected to drop to historically low levels at the end of the 2020-21 crop year. The Ontario growing region has received below-normal precipitation over the past 60 days; therefore, soil conditions are on the drier side heading into seeding.
Brazilian farmers had harvested about 77 per cent of the soybean crop as of April 4. This compares to last year’s progress of 82 per cent and the five-year average of 77 per cent. The two-week forecast looks favourable so farmers will have the bulk of the crop off by the end of April.
The harvest of Brazil’s first crop corn is in the final stages and for the most part, farmers have wrapped up planting of the second crop.
In Argentina, the corn harvest is about seven per cent complete, down from 14 per cent last year.
The soybean harvest is in the early stages and will move into high gear over the next two weeks.
Brazilian soybeans are discounted to U.S. origin while Argentine corn appears to be the most competitive on the world market.
Throughout the winter, Chinese demand was the main factor driving the price strength in grain and oilseed prices. We now find this demand tapering off heading into summer.
The resurgence of African swine fever has reduced feed use and stocks of coarse grains are burdensome in Chinese port positions. The second factor underpinning corn and soybean prices was the strength in energy values. We now find crude oil futures down about US$8 per barrel from the March highs due to building U.S. oil inventories. Ocean freight values have been percolating higher over the past month, which has been a disadvantage for smaller cargoes.
Canadian soybean exports, year-to-date for the week ending March 28 were 3.5 million tonnes, up from 2.4 million tonnes last year. Canadian soybean exports during March were only 110,000 tonnes.
We now find Brazilian soybeans at a discount to U.S. and Canadian origin into major destinations, which has slowed offshore movement. Demand for U.S. meal has also subsided, which has weighed on North American values.
At this time, the main demand for Ontario soybeans is the domestic market and crush margins are under pressure. Stocks are expected to drop to bin bottom levels but further upside in prices will depend on the development of the upcoming crop.
Ontario farmers are expected to plant 3.2 million acres of soybeans this spring, up three per cent from the 2020 planted area. Using a five year-average yield of 47.5 bushels per acre, production has the potential to reach 4.1 million tonnes, up from the 2020 output of 3.9 million tonnes.
The U.S. fundamentals will remain snug during the upcoming crop year. U.S. farmers intend to plant 87.6 million acres of soybeans, up five per cent from the 2020 seeded area. Using an average yield of 50 bushels per acre, production has the potential to reach 118.3 million tonnes, up from the 2020 crop size of 112.5 million tonnes.
If we use a similar demand scenario to the 2020-21 crop year, the ending stocks for 2021-22 will also come in at less than 100 million bushels or less than 2.7 million tonnes. This is considered historically tight and the market will be very sensitive to weather and crop development. We don’t expect significant imports of U.S. soybeans into southern Ontario during the 2021-22 crop year.
In the short term, the North American soybean market is rationing demand by trading at a premium to South America. Once the exportable surplus is absorbed from Brazil, demand will switch over to U.S. origin.
Chinese demand for the 2021-22 crop year is uncertain at this stage but will likely stay at the higher levels longer term as China rebuilds its hog herd. We’re expecting the price pattern for the upcoming crop year to mirror 2020-21.
What to do: We’ve advised producers to be 100 per cent sold on old crop and 20 per cent sold on new crop. There is no reason to sell additional new crop at this stage.
Ontario cash corn prices have somewhat divorced from the U.S. corn market for three main reasons. The U.S. fundamentals are heavily dependent on exports to sustain the current price structure. If exports subside, the U.S. domestic market tends to soften.
In Ontario corn exports only amount to about six per cent of the production, whereas in the U.S exports compose about 20 per cent of production. Secondly, feedlots in the U.S. Southern Plains have the option to use a significant volume of hard red winter wheat in feed rations.
In Ontario, corn is the main staple for all livestock production this year. In past years, there has been more wheat feeding, but not this year with higher wheat prices. Rising ethanol prices have also supported Ontario corn prices. Compared to the U.S. the Canadian domestic market appears to be more sensitive to rising energy values.
We’re expecting Ontario farmers to plant 2.3 million acres of corn this spring, up from 2.2 million acres last year. Using an average yield of 163 bushels per acre, production has the potential to reach 8.9 million tonnes, similar to the 2020 crop size, but up from the five-year average of 8.7 million tonnes. We’re expecting Ontario corn stocks to drop to historical lows at the end of the 2020-21 crop year, which will keep the market well supported into new crop positions.
The USDA survey had farmers planting 91.1 million acres of corn, up only 325,000 acres from the 2020 seeded area. Using an average yield of 173 bushels per acre, U.S. corn has the potential to finish near 367 million tonnes, up from the 2020 crop size of 360 million tonnes, only marginally higher than the five-year average of 362 million tonnes.
This crop size isn’t sufficient to rebuild stocks given current demand projections. We believe the corn market has the potential to incorporate a major risk premium during May due to the uncertainty in production. The U.S. corn market will have to do some serious demand rationing and this usually occurs in the summer and early fall period.
What to do: We’ve advised producers to be 80 per cent sold on old crop. In the previous issue, we recommended that producers sell the first 20 per cent increment of their 2021 expected production. U.S. corn acreage was lower than expected on the USDA crop survey. Keep in mind that the next crop survey in June could tell a different story.
Ontario bids for hard and soft red winter wheat have been trending lower since early February. The wheat premium over corn has narrowed. We expect to see wheat move into feed rations later in summer when the harvest moves into full swing.
The Ontario wheat crop has come out of dormancy in favourable condition; however, timely rains will be needed to sustain yield potential.
We’re forecasting a winter wheat crop of 2.5 million tonnes, up from the 2020 crop size of 2.3 million tonnes.
The USDA acreage report was considered bearish for the wheat complex. U.S. hard red winter wheat acres were reported at 23.2 million, up from the 2020 area of 21.7 million acres. Using an average yield of 45 bushels per acre, U.S. hard red winter production has the potential to reach 27.2 million tonnes, up from 17.9 million tonnes.
U.S. soft red winter wheat acreage came in at 6.4 million, up from the year-ago seeded area of 5.6 million acres. Using a five-year average yield, soft red winter production has the potential to reach 9.1 million tonnes, up from the 2020 crop of 7.2 million tonnes.
We’re going to see a rebuilding of winter wheat stocks in the U.S, which will weigh on the futures market. The U.S. hard red winter wheat belt receives seasonal rains during April. Keep in mind that U.S. farmers sell nearly 50 per cent of the wheat crop in the summer months. Unless we see a rally in the corn, there is no justification for higher wheat prices.
Germany, France, Russia and Ukraine are experiencing excellent conditions so far. The European and Russian harvests will occur in July, one month after the main U.S. harvest. Despite the Russian export wheat tariffs, we continue to see Black Sea wheat more competitive than U.S. origin on the world market. Sellers are going to be more aggressive with the Northern Hemisphere harvest approaching.
What to do: We’ve advised Ontario farmers to be 80 per cent sold on their 2020 production.
We’re going to see more wheat feeding in Canada and the U.S. until the corn harvest. This will limit the downside. Export demand will subside with aggressive competition from the major exporters. We plan to make our final sales recommendation once the 2021 crop is more established.