Weather in Ontario has been variable over the past month. Corn and soybean planting progressed rapidly in the southwest. The northern region has been plagued with excessive precipitation while central growing counties started field work.
The Ontario winter wheat crop entered the flag leaf stage and conditions are favourable to sustain yield potential. Farmer selling has been limited over the past month, which has kept export offers for Ontario corn and soybeans above world values. Elevator bids have been based on domestic demand.
The wheat market is moving in line with the world values but exports have been limited. The March 31 stocks report showed there was less corn, soybean and wheat stocks on Ontario farms compared to March 31, 2022.
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Quick look
Soybeans: The Ontario market will be sensitive to yield developments.
Corn: Larger than expected feed use in the first seven months of the crop year has resulted in tighter than expected Ontario corn fundamentals.
Wheat: Uncertainty in wheat quality is making forward pricing difficult.
The U.S. is expected to produce record corn and soybean crops in 2023 according to the U.S. agriculture department. The May World Agriculture Supply and Demand Estimates (WASDE) report was considered bearish for new crop corn and soybeans. U.S. wheat production is expected to be marginally higher than year-ago levels.
Minor increases were made to the record Brazilian corn and soybean crops. Argentine production was unchanged from April data but this has become inconsequential for the market.
U.S. corn and soybean planting is moving into the final stages. The main Brazilian corn harvest will move into full swing during June. Geopolitical events continue to influence the grain and oilseed markets. At the time of writing this article, the extension of the Black Sea Grain Initiative beyond May 18 was uncertain.
China has been cancelling U.S. corn sales and switching to lower-priced Brazilian origin. China and Russia continue to work on land logistics to enhance trade. There is an ongoing decoupling of the global economy into U.S.-West and China-Russia spheres of influence.
The Canadian dollar continues to trade in the long-term range with support at 73 cents US and resistance at 75 cents. The U.S. government needs to increase the debt ceiling by early June to avoid defaults on payments. Uncertain fiscal policy comes when the U.S. Federal Reserve continues to increase its key lending rate. This environment is bearish for the Canadian dollar. Once the debt ceiling is raised, the Canadian dollar is expected to strengthen against the U.S. greenback.
Soybeans
Ontario on-farm soybean stocks as of March 31 came in at 575,000 tonnes. This was down from the on-farm stocks of 760,000 tonnes a year ago and down from our estimate of 800,000 tonnes. This is supportive for Ontario basis.
The Ontario domestic soybean market will have to ration demand for the remainder of the crop year. This involves trading at world values to curb exports and trade high enough to import around 125,000 tonnes of U.S. soybeans from April 1 through July 31. This is a change from our previous forecast.
Producer selling has slowed and domestic crushers need to pull additional volume from farmers. Ontario on-farm soybean stocks are expected to drop to historical low levels at the end of the crop year. Keep in mind that domestic crushers take their downtime for upgrades and maintenance during July and August. Crush margins are under pressure due to weaker meal and oil values. Looking forward, the Ontario market will be sensitive to yield developments. We continue to project an Ontario soybean crop of 3.993 million tonnes, down from the 2022 output of 4.9 million tonnes.
The USDA used the March planting survey and a trend yield of 52 bushels per acre to project a record 2023 crop of 122.7 million tonnes. This was up from the 2022 output of 116.3 million tonnes and up from the five-year average of 113.8 million tonnes.
The USDA is expecting a year-over-year increase in domestic crush and exports, resulting in a carryout of 9.1 million tonnes, up from the 2022-23 ending stocks of 5.9 million tonnes. The USDA also bumped Brazil’s record crop by one million tonnes to 155 million tonnes. Argentine output was left unchanged at 27 million tonnes.
Brazilian soybeans are offered at US$491/tonne f.o.b. Paranagua while U.S. origin soybeans are quoted at $551/tonne f.o.b. the Gulf for June/July. Ontario soybeans are quoted at US$545/tonne f.o.b. St. Lawrence port. The Ontario market is high enough to curb exports but not to attract imports. Domestic crush bids need to strengthen by about $25/tonne to attract imports from Michigan.
What to do: We have advised farmers to be 100 per cent sold on their 2022 output and 15 per cent sold on expected 2023 production. Brazil harvested a record crop. The market realizes there is potential for a surge in U.S. production. The market will likely remain firm in the short term and grind lower in summer, barring adverse weather.
Corn
According to Statistics Canada, Ontario corn stocks as of March 31 totalled 6.5 million tonnes. This was down from our forecast of seven million tonnes and from the year-ago level of 6.9 million tonnes. On-farm corn stocks were 3.2 million tonnes compared to our estimate of three million tonnes. Commercial stocks were about 500,000 tonnes lower than anticipated. This is supportive for corn basis.
The Ontario corn fundamentals are tighter than was earlier expected due to larger than expected feed use in the first seven months of the crop year. We’re now forecasting the Ontario corn carryout to finish near 1.5 million tonnes, down from the 2021-22 ending stocks of two million tonnes and down from the five-year average ending stocks of 1.8 million tonnes.
U.S. corn production is expected to reach a record 387.8 million tonnes, up nearly 40 million tonnes from last year and up 23 million tonnes from the five-year average. This crop estimate was using the March intentions data and an average yield of 181.5 bu./acre. This would be the highest yield on record and would rely on optimal conditions across all main growing states.
The market has factored in no risk premium due to weather so there is volatility ahead. We may see some acreage switching in North Dakota and Minnesota due to late planting. The USDA projected at 2022-23 ending stocks to finish near 56 million tonnes, up from the 2022-23 carryout of 36 million tonnes and up from the five-year average of 45 million tonnes.
Brazil is on track to harvest a record crop of 130 million tonnes, up from last year’s output of 116 million tonnes. European corn output has potential to reach 64 million tonnes, up from last year’s crop size of 53 million tonnes.
On a side note, China has been cancelling U.S. corn sales and switching to Brazilian origin. More importantly, China recently purchased South African corn. This shows the extent China will go to source from origins besides the U.S.
Currently, Brazilian corn offers are at US$239/tonne f.o.b. Paranagua. U.S. corn is quoted at $269/tonne f.o.b. the Gulf. French corn is quoted at $230/tonne f.o.b. La Pallice for July. Ontario corn is quoted at US$232/tonne f.o.b. St. Lawrence port for July. It will be difficult for Ontario corn to trade into Northern Europe.
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. Although stocks are lower than anticipated, this projection is based on 700,000 tonnes of exports from April 1 through Aug. 31. This will be difficult to achieve given the price differential between Ontario and Europe. New crop is bearish given current estimates. If a weather rally occurs, it is a selling opportunity.
Wheat
Ontario winter wheat is developing under favourable conditions. We continue to project a crop size of 2.7 million tonnes, up from last year’s output of 2.2 million tonnes and up from the five-year average of 2.1 million tonnes. Ontario old and new crop wheat prices are relatively unchanged from 14 days earlier. In the previous issue, we estimated one million tonnes of wheat for exports. This may be low, given recent market developments.
The USDA WASDE report was bullish for wheat. All U.S. wheat production was estimated at 45.2 million tonnes, up marginally from last year’s crop size of 44.9. The U.S. all wheat ending stocks for 2023-24 were estimated at 15.1 million tonnes, down from the 2022-23 carryout of 16.3 million tonnes.
Kansas wheat production was estimated at 5.2 million tonnes, down from 6.6 million tonnes last year. This was a shock to the industry. Hard red winter wheat conditions have deteriorated over the past month and the crop is beyond recovery.
European wheat crops are developing under favourable conditions. German and French production will be similar to year-ago levels. In Western Canada, Alberta and pockets of Saskatchewan are contending with drought-like conditions and timely rains will be needed over the next month.
North Dakota has experienced planting delays due to adverse moisture. U.S. hard red spring acres are down marginally from last year. There is a fair amount of uncertainty with North American hard red spring wheat production.
At the time of writing this article, negotiations were underway to extend the Black Sea Grain Initiative beyond May 18. The USDA estimated Russian wheat exports for the 2022-23 crop year at 44.5 million tonnes and exports for 2023-24 at 45 million tonnes. There are no direct sanctions on the Russian grain trade but on certain Russian banks, companies and individuals.
Despite large Russian exports, the wheat complex remains sensitive to Black Sea developments. Russia’s invasion of Ukraine has tempered Ukraine wheat exports, which are only expected to reach 10 million tonnes in the 2023-24 campaign. This is about half the normal pace prior to the war.
Currently, U.S. soft red winter wheat, French soft wheat and Ontario soft red winter are the lowest priced wheats on the world market. The U.S. soft red winter harvest will begin in June, followed by the main European and Russian harvests in July. There is strong competition in the short term.
What to do: We’ve advised producers to be 100 per cent sold on old crop. We haven’t recommended sales for new crop. Wheat is one crop farmers need to store. Quality uncertainty makes wheat difficult to forward price. Our first sales recommendation will likely occur in October after the Northern Hemisphere harvest season.
