Ontario corn and soybean harvests are in the final stages. Harvest reports confirm record yields for row crops. Weather was more co-operative in early November, resulting in significant harvest progress.
Basis levels are under pressure as the commercial pipeline is considered full. Exports for corn and soybeans have improved in recent weeks. Farmers have been anxious sellers with elevator corn bids near $7 a bushel and soybeans over $15/bu. Ontario corn and soybeans are competitive on the world market at current levels.
Favourable early November weather resulted in lower drying costs but most of the corn has come off at high moisture. Ontario winter and spring wheat markets are making fresh 52-week highs due to strength in the world wheat market. Local basis levels remain firm due to lower supplies of milling quality.
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Quick look
Soybeans: It’s expected Ontario’s soybean crop will be significantly higher than government estimates and the 2020 total (Editor’s Note: This article appeared in the Nov. 29, 2021 print edition of Farmtario, before Statistics Canada released its November crop production estimates on Dec. 3.).
Corn: We’re forecasting Ontario’s corn crop will, like soybeans, be much higher than the five-year average.
Wheat: Delayed soybean harvest hindered winter wheat planting, which means Ontario acreage likely under one million.
As of Nov. 14, the U.S. corn harvest was 91 per cent complete and approximately 92 per cent of the U.S. soybeans were in the bin. As of Nov. 15, Brazilian soybean planting was 70 per cent complete while first-crop corn planting was 78 per cent complete.
In Argentina, trade estimates have corn planting at 30 per cent complete and soybean planting at eight per cent. Southern Brazil is on the drier side. Argentina has received timely rains over the past several weeks. However, the two-week forecast calls for drier conditions in southern Brazil and in Argentina.
The Ukraine corn harvest is 80 per cent complete. It’s still early but the market is extremely sensitive to weather conditions given the lower ending stocks situation. Ending wheat stocks from major exporters are expected to drop to historical low levels at the end of the 2021-22 crop year.
Adverse rains in Eastern Australia have resulted in lower quality wheat in that region. Yield and quality are exceptional in Western Australia.
The U.S. consumer price index for October came in at 6.2 per cent year-over-year with core inflation (excluding food and energy) up 4.6 per cent. Higher inflation levels are supportive for commodity prices. Farmland is one of the best hedges against inflation. The concern is inflation levels of this magnitude coincide with the beginning of a recession.
The crude oil supply curve has become inelastic over the past year. A small change in demand results in a large change in price. Government policy, social license sentiment and low financial returns have resulted in lower investment in the energy sector. This is the main factor contributing to strength in the corn and soybean markets.
Rounds of stimulus money from governments have contributed to higher energy costs. Economic growth in China, India, Europe and North America is closely tied to energy consumption. The Canadian dollar is expected to trade sideways or consolidate until the end of December and will have little influence on grain and oilseed market direction.
Soybeans
We’re expecting the Ontario soybean crop to come in at 4.4 million tonnes, up from the Statistics Canada estimate of 3.8 million tonnes and up from the 2020 output of 3.9 million tonnes. Canadian crop year-to-date soybean exports for the week ending Nov. 7 were 1.1 million tonnes, down from 1.3 million tonnes last year. Ontario export offers are competitive with U.S. values out of the Gulf, which should enhance offshore movement over the next couple of months.
Recently, there has been a spike in export demand for U.S. soymeal. Domestic crush margins have improved over the past several weeks. The Canadian domestic crush pace for the week ending Nov. 7 was 0.5 million tonnes, slightly ahead of last year. Product values are expected to percolate higher over the next month, which will enhance the crush margin structure.
USDA’s World Agricultural Supply and Demand Estimates (WASDE) report was viewed as neutral for the soybean market. Production was taken down by 0.5 million tonnes, to 120.5 million tonnes. This compares to last year’s output of 114 million tonnes.
The USDA also trimmed the U.S. export projection because the commitments are running 35 per cent below year-ago levels. The net result was an increase to the carryout. U.S. soybean ending stocks for the 2021-22 crop year are now expected to come in at 9.3 million tonnes, up from the 2020-21 carryout of seven million tonnes. When the U.S. has a carryout around 10 million tonnes, the market is considered neutral.
There are three major factors contributing to soybean direction over the next three months. First is South American weather and overall production forecasts. At this stage, USDA is forecasting a year-over-year increase in Brazilian output of six million tonnes. The Argentinian crop is expected to be up three million tonnes from year-ago levels.
Secondly, Chinese demand for 2021-22 crop year is expected to reach 100 million tonnes, similar to last year. Third is meal and oil demand. U.S. soymeal exports commitments are exceeding last year while soybean sales are down. Energy values continue to underpin the soy oil market.
What to do: We’ve advised Ontario farmers to be 50 per cent sold on their 2021 production. That’s enough for now. We expect the soybean market to incorporate a risk premium due to the uncertainty in South American production. We also believe that energy values will continue to percolate higher over the winter.
Corn
Ontario corn prices continue to percolate higher despite an aggressive harvest pace over the past several weeks. We’re forecasting the Ontario crop to reach 10 million tonnes, up from the September Statistics Canada estimate of 9.6 million tonnes and up from the five-year average output of 8.7 million tonnes.
The ethanol grind in Ontario is running near full capacity given the favourable margins. Domestic feed demand is at seasonal highs. The drought in Western Canada caused feeder cattle to be placed into feedlots sooner than normal.
Offshore movement is also increasing, with Ontario prices competitive with U.S. values out of the Gulf. The main home for Ontario corn is Ireland and Spain. Rising wheat prices in Europe have enhanced demand for Ontario corn. High freight costs are also helping buyers lean toward Ontario origin.
The U.S. corn market is in a similar situation to the Ontario price structure. Ethanol processors are running in high gear, enhancing basis levels in the main regions of Iowa, Nebraska and the northern Midwest states. Farmers are holding onto corn with expectation of higher prices over the winter.
Export basis levels out of the Gulf are the most competitive on the world market. Remember, the Brazilian exportable surplus from the main second crop is only available in June. The November USDA WASDE report was considered neutral.
Without going into detail, U.S ending stocks for 2021-22 are expected to finish near 38 million tonnes. While this is up from the 2020-21 carryout of 30 million tonnes, it’s down from the five-year average of 53 million tonnes.
China has been on the sidelines since May but ideas are they will come in later in December or January for their February through June demand. Keep in mind that China is coming off a food short- age and there are still concerns about available stocks, despite their larger crop. The quality of corn in storage is uncertain.
All major importing countries along with South America are contending with food inflation. We remember how Argentina imposed export constraints last year. The ruling party in Argentina just lost control of the Senate in the recent election. President Fernandez needs to cooperate with the opposition. Farmers need to keep an eye on these political events. Argentine production will be extremely sensitive to weather over the next couple months.
What to do: This week, we’re advising farmers to sell 10 per cent of their 2022 production, bringing total sales to 40 per cent. We feel it’s prudent to sell into this strength. We’re looking to make our next sale once the Argentinean crop is more certain and the forecast looks more favourable. A harsh winter will enhance energy prices and spill over into the corn market.
Wheat
Ontario wheat prices reached seven-year highs in early November. Strong world values and strength in the feed complex have enhanced domestic prices. In the previous issue, we provided an overview of the Ontario wheat fundamentals. We forecasted that on-farm stocks would drop to the lowest levels since the 2007-08 crop year.
The market should be encouraging production but the delayed soybean harvest has hindered winter wheat planting. Ontario winter wheat acres will likely drop under one million acres this fall, down from last year’s seeded area of 1.1 million acres.
We’ve mentioned in recent issues that the 2021 crop was 2.6 million tonnes, which included 1.8 million tonnes of milling quality and 800,000 tonnes of feed quality. The milling market needs to maintain a premium over world values to ration demand. Ontario feed wheat prices are percolating higher given the strength in the corn market.
The recent Egyptian tender in early November was awarded to Russian origin at US$332.55/ tonne f.o.b. Black Sea. This was up nearly US$5/tonne from the previous tender in late October. Russian wheat exports are down 34 per cent from year-ago levels due to the smaller crop and export tax of nearly US$77/tonne. Russia is contending with food inflation and traders expect the tax to surge if prices reach over US$375/ tonne.
The U.S. is in a unique situation as well. Export values out of the Gulf are premium to world values. This is due to a stronger domestic market. Approximately 50 per cent of the U.S. wheat crop is used domestically for milling purposes. Like Ontario, the U.S. domestic market needs to ration demand.
Australia will produce its second-largest crop on record at 33 million tonnes. However, there are quality issues due to rains in the eastern regions. It’s too early to know the extent of the damage. Australia has a strong export program over the next two months to Southeast Asia and China due to the lack of Russian competition.
World stocks from major exporters will be historically tight at the end of the 2021-22 crop year. The wheat market has two main seasonal rallies. The first rally occurs in October and November. The second occurs when the Northern Hemisphere winter wheat comes out of dormancy.
What to do: This week, we’re advising producers to increase sales by 10 per cent, bringing total sales for the 2021 wheat crop to 50 per cent. Be patient to sell the remainder of the crop. We’re looking for a major rally in February, similar to the price behaviour in February and March of 2008.
–– Jerry Klassen is a market analyst and commodity trader for Resilient Capital.
