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Statistics Canada yield estimates useful for market predictions

Hurricane Ida, good Canada and U.S. soybean crops factor into projections

The fundamentals for corn and soybeans will remain historically tight for the 2021-22 crop year so the markets are very sensitive to production estimates such as the one recently released by Statistics Canada.

Statistics Canada released its first yield and production estimate on Aug. 30. 

Satellite technology was used to model crop yields as of July 30 and the actual harvested area was based on historical averages. Winter wheat production came in at 2.6 million tonnes, which is the largest crop since 2016. Corn output could reach a 10-year high of 9.1 million tonnes and soybean production is expected to finish near 3.8 million tonnes, down marginally from last year. 

Statistics Canada was to update its yield projections using satellite technology on Sept. 14. That estimate will be based on conditions as of Aug. 30. The final crop estimate, to be released Dec. 3, will be based on a farmer survey for yields and harvested area. We’re looking for basis depreciation for corn and soybeans through the harvest period in Ontario due to the larger crop size.

Quick look

Soybeans: StatsCan is likely to increase its yield estimate on upcoming reports as field evidence suggests the crop is better than last year in most regions of the province. 
Corn: StatsCan estimated the average Ontario corn yield at 169.4 bu./acre, resulting in a production estimate of 9.064 million tonnes. 
Wheat: The hard red spring market is trading at a premium to world wheat values, which will keep winter and spring wheat values in Ontario well supported. 

Hurricane Ida caused considerable damage to grain terminals along the Mississippi River in New Orleans during the weekend of Aug. 29. This was negative for the corn and soybeans futures during the first half of September. It will likely take until Sept. 20 for loading to resume at normal capacity. 

Traders are focused on U.S. corn and soybean yield potential. The fundamentals for corn and soybeans will remain historically tight for the 2021-22 crop year so the markets are very sensitive to production estimates. 

The wheat market is poised to experience a seasonal rally over the next month. Russian and European wheat production estimates are down from earlier projections. Australian conditions are optimal but this crop will only come on the market in December. The spring wheat market needs to ration demand due to historically tight fundamentals for Western Canada. 

The Canadian U.S. exchange rate has been volatile over the past month. U.S. inflation is reaching higher levels while the jobless rates slowly improve in both Canada and the U.S. We’re bound to see the quantitative easing from the Federal Reserve and Bank of Canada come to an end during the first quarter of 2022. The first interest rate hike is expected in the latter half of 2022. 

The Canadian dollar is expected to hover in the range of 79 to 82 U.S. cents for the remainder of 2021. Inflation is generally bullish for commodity prices. North American and global economic growth is being tempered by the fourth wave of the COVID pandemic. This tends to be bullish for wheat and corn but neutral for soybeans.

Soybeans

Statistics Canada estimated the average Ontario soybean yield at 48.3 bu./acre, resulting in a production number of 3.846 million tonnes. This compares to the 2020 yield of 50.7 bu. and crop size of 3.9 million tonnes. We’re looking for Statistics Canada to increase the yield estimate on upcoming reports because our contacts suggest the crop is better than last year in most regions of Ontario. 

Canadian soybean exports for the 2020-21 crop year were 3.6 million tonnes, up from 2.7 million tonnes the previous year. Ontario soybean exports during September and October will be limited. However, we’re looking for a surge in offshore movement during November and December. The domestic crush pace will also improve once the Ontario harvest moves into high gear. 

The U.S. soybean crop will likely finish around 118.5 million tonnes, up six million tonnes from last year. However, it’s important to note that with the lower carry-in stocks from the previous crop year, total supplies will be down from year-ago levels. 

Total U.S. soybeans supplies (excluding imports) for the 2021-22 are estimated at 122.4 tonnes, down about four million tonnes from last year. Lower U.S. supplies will result in a year-over-year decrease in exports, so we’re going to see strong offshore demand for Ontario soybeans in the first half of the crop year. 

The National Oceanic and Atmospheric Association upped the odds to 70 per cent for a second consecutive La Nina for the South American summer. There is a higher probability for below average rainfall for Brazil and Argentina. The soybean market will likely incorporate a risk premium due to the uncertainty in South American production during January and February. 

What to do: We’ve advised producers to be 20 per cent sold on their 2021 production. We’re planning to make our next recommendation after harvest in November. Demand is at a seasonal low during harvest and there’s bound to be an increase in farmer selling due to the larger expected crop and higher prices. 

Corn

Statistics Canada estimated the average Ontario corn yield at 169.4 bu./acre, resulting in a production estimate of 9.064 million tonnes. This compares to the 2020 yield of 163.9 bu./acre and crop size of 8.908 million tonnes. 

Our contacts in Ontario feel comfortable with this yield estimate given conditions over the past month. We don’t expect much change on upcoming Statistics Canada reports. The corn market is moving through a seasonal low period of demand. Cattle on feed inventories tend to dip in late summer and early fall. Offshore movement also slows in August and September. 

Canadian corn exports for 2020-21 finished at 1.344 million tonnes, up from 456,000 tonnes last year. For the 2021-22 crop year, corn export demand is hard to forecast. Europe is the main destination for Ontario corn. We’ve seen a surge in feed wheat production in France and parts of Germany due to the adverse rains during harvest. Ocean freight rates are also up sharply from year-ago levels. At this stage, Ontario offers for November and December are premium to U.S. offers out of the Gulf. 

Seasonally, the corn futures tend to rally from late September through the early winter period. Corn futures tend to make a seasonal low just before the onset of the main U.S. harvest period. U.S. exports, domestic feed demand and ethanol usage increase during late fall. The U.S. is the main origin for world demand at this time. 

Brazilian supplies are tight until new crop positions. Argentina continues to deal with its own domestic issues. As well, low water levels are hindering movement into export position. We feel comfortable with a U.S. corn estimate of 375 million tonnes, up from 2020 output of 360 million tonnes. If the crop comes in lower than this estimate on upcoming USDA WASDE reports, the market will likely experience a major rally. 

What to do: We’re 20 per cent sold on the 2021 crop. We’re going to see some harvest pressure in the short term. Our next sales recommendation will likely occur in November. 

Wheat

Statistics Canada’s models had the Ontario average winter wheat yield at 87 bu./acre, resulting in production of 2.6 million tonnes. This compares to the 2020 yield of 83 bu./acre and crop size of 2.3 million tonnes. 

We estimate that nearly half the winter wheat crop is feed quality due to adverse rains during the harvest period. At the time of writing this article, soft winter wheat prices were nearly $1 per bu. off the May highs hovering around $8/bu. Hard red spring wheat prices were around $10.50/bu. 

U.S. soft red winter wheat production was estimated at 10 million tonnes, up from the 2020 crop size of 7.2 million tonnes. Approximately 25 per cent of the U.S. soft red winter was feed quality. The Ontario soft red winter milling wheat market needs to trade at a premium to U.S. and world values to ration demand. We’re looking for strong basis levels for soft red winter wheat moving forward. 

Statistics Canada had non-durum spring wheat production at 16.1 million tonnes, down from the 2020 crop of 25.8 million tonnes. We’re looking for a downward adjustment on upcoming reports. The hard red spring market is also functioning to ration demand by trading at a premium to world wheat values. This will keep winter and spring wheat values in Ontario well supported. 

Updated Russian data had lower than expected seeded acreage. Dryer conditions also tempered yield potential in June. Russian production is now estimated at 72.5 million tonnes, down from earlier estimates of 85 million tonnes.

It appears that the Russian government will announce an export tax on a weekly basis to curb domestic food inflation. Minor increases in Ukraine and Australia offset the lower production from Russia. Ending stocks from major exporters for the 2021-22 crop year will be relatively unchanged from year-ago levels. 

What to do: We’ve advised producers to be 20 per cent sold on their 2021 winter wheat production. If you have feed wheat, we believe you should be 30 to 50 per cent sold. The upcoming corn harvest will weigh on feed grain values. 

Out of all the markets, we believe wheat has the highest probability to rally through the fall period. In addition to the lower production estimates in Canada and Russia, end users have a large portion of their demand uncovered for the fall and winter. Major buying still needs to come into the market. We’re planning to make our next sale for milling wheat in late October or early November. 

About the author

Markets Analyst

Jerry Klassen is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at ResilCapital.com.

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