From June 22 through July 21, the Ontario growing region received 150 to 200 per cent of normal precipitation.
Certain regions north of Windsor and north of Toronto received more than 200 per cent of normal rainfall. During the same 30-day period, temperatures were 2-3 degrees C cooler than normal west and south of Toronto. North and east of Toronto, temperatures were normal to 2 C above normal.
Quick look
Soybeans: Estimates are up for Ontario’s soybean yield and total production.
Corn: Ontario corn production should be above the five-year average due to timely rains and heat.
Wheat: Russian and Ukrainian wheat shipment potential is unknown due to bombing of Ukrainian ports, which will affect global wheat markets.
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Conditions have been optimal for Ontario corn and soybean development, causing us to increase our yield projections for the province. Basis levels have been under pressure in Ontario as yield expectations increase. The winter wheat harvest was well underway during late July. Yield reports confirm our production estimate.
Private analysts and industry representatives have lowered their U.S. corn and soybean yield projections. During the latter half of July, the weather forecast for the Midwest calls for above-normal temperatures and below-normal precipitation. The U.S. drought monitor shows that nearly 70 per cent of the Midwest is at some level of drought.
Brazil’s Safrinha corn harvest is in the final stages. Export offers of Brazilian corn and soybeans are more competitive than U.S. values out of the Gulf for nearby positions. However, U.S. corn is competitive for November and December, which is limiting the downside in the world market.
On July 18, Russia pulled out of the Black Sea Grain Initiative and did not renew an extension of the trade agreement. Dryer conditions in Western Canada and North Dakota along with lower production estimates from Europe have contributed to stronger wheat prices.
U.S and Canadian equity markets were trading near fresh 52-week highs in the middle of July. Recessionary fears have abated and stronger-than-expected consumer spending has enhanced GDP forecasts on both sides of the border.
The Canadian dollar has been consolidating near five-month highs and we’re expecting additional appreciation against the greenback in the fall period. We expect ongoing rate hikes from the Bank of Canada and the U.S. Federal Reserve. Job and wage growth continues to keep core inflation elevated and the central banks are working to loosen the job market.
Soybeans
We feel comfortable with Statistics Canada’s soybean acreage estimate of 2.913 million acres, which was down 167,000 acres from last year. However, we’ve increased our Ontario soybean yield estimate from 49 bu./acre, which is the five-year average, to 51.2 bu./acre. We’re now projecting an Ontario soybean crop of four million tonnes, unchanged from last year’s output. which was also four million tonnes but up from the five-year average of 3.9 million tonnes.
The Ontario carryout for the 2022-23 crop year will drop to bin-bottom levels. Imports from the U.S. have increased over the past month as domestic stocks dwindle. Exports of soybeans have come to a halt until harvest.
At the time of writing this article on July 22, Brazilian soybeans were quoted at US$527/tonne fob Paranagua while U.S. soybeans were quoted at $585/tonne f.o.b. the Gulf. Ontario soybeans were valued at US$565/tonne f.o.b. St Lawrence port for August and US$525/tonne for October. Ontario soybeans are competitive on the world market for new crop positions.
The USDA estimated the average soybean yield at 52 bu./acre on the July World Agricultural Supply and Demand Estimates (WASDE) report. Traders shrug off USDA yield data until September when they survey and walk fields.
We’re projecting an average U.S. yield of 47.5 bu./acre, which would result in a crop size of 105.7 million tonnes, down from the 2022 crop size of 116.4 million tonnes and down from the five-year average of 113.8 million tonnes. Given the lower production estimate, the market will need to ration demand by limiting exports in the 2023-24 crop year.
The WASDE report was a non-event for South American production with no changes to Brazil or Argentina projections.
This is important for Ontario growers when planning a marketing strategy for the 2023-24 crop year. Ontario imports between 220,000 and 250,000 tonnes of U.S. soybeans from April 1 through July 31. Next year, this volume will be difficult to source as the U.S. market will function to ration demand by trading above world value.
The world soybean market is now in a situation where it cannot afford a crop problem in South America for the 2023-24 crop.
Ontario soybean farmers tend to sell 70 per cent of their soybeans by Dec. 31. For the 2023-24 campaign, it’s important to keep at least 50 per cent of the crop back for sales in the latter half of the crop year. If South America has a crop problem, we could see soybean prices move back to historical highs. If Brazil and Argentina have average years, we could still see additional strength because of growing demand.
What to do: We have advised producers to be 100 per cent sold on old-crop soybeans. Earlier in spring, we advised producers to sell 20 per cent of the expected new crop. Our next sales recommendation will likely occur in October or November, once we have a better idea of U.S. yields.
Corn
Statistics Canada’s June acreage survey had Ontario corn acres at 2.281 million, down only 15,000 acres from last year. We’ve bumped up our yield estimate from the five-year average of 166 bu./acre to 173 bu./acre. We’re now projecting an Ontario corn crop of 9.8 million tonnes, up from the 2022 output of 9.4 million tonnes and up from the five-year average of nine million tonnes.
To reiterate our previous issue, Ontario’s domestic and export demand moves through a seasonal low during the summer. We avoid making sales recommendations during this time. Ontario corn continues to be competitive in Northern Europe, which is also limiting the downside in the domestic market.
At the time of writing this article, Brazilian corn was offered at US$230/tonne f.o.b. Paranagua; U.S. corn was quoted at $240/tonne f.o.b. the Gulf and French corn was offered at $275/tonne f.o.b. La Pallice. Ontario corn was quoted at US$230/tonne f.o.b. St. Lawrence port.
Given current price spreads, there is a strong demand pull from Northern European destinations for Ontario corn for September through December. We’re anticipating a sharp year-over-year increase in exports, which will lower Ontario stocks in the latter half of the crop year.
We’re projecting a U.S. corn crop of 366 million tonnes, down from the current USDA estimate of 389 million tonnes and up marginally from the five-year average output of 365 million tonnes.
During November, Brazilian farmers will be encouraged to seed soybeans rather than corn. This will result in lower production for their first corn crop. Brazil experienced optimal conditions in 2023 but weather can be quite variable for its second corn crop, which is harvested in June.
The world will have to come to the U.S. from February through June 2024 to satisfy demand.
Ontario farmers tend to sell 50 per cent of their corn crop by Dec. 31. This causes commercial stocks to swell. In a normal year, export demand only increases in the latter half of the crop year.
At this stage, there is potential for crop year highs to be made in March and April, just prior to Brazil’s second corn harvest. Ontario’s domestic demand also makes seasonal highs in April and May.
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. Be patient to make additional sales. At this stage, it appears that Ontario corn prices will make crop year highs in April or May 2024.
Wheat
The Ontario winter wheat harvest is well underway. We continue to forecast an Ontario winter wheat crop of 2.541 million tonnes, up from last year’s output of 2.227 million tonnes and up from the five-year average of 2.1 million tonnes.
From August to October, the Ontario wheat market is very sensitive to quality parameters. If a percentage of the crop is low quality or feed, this trims supplies for the exportable surplus and the market tends to experience a sharper rally during the fall period. The market tends to ration demand by trading above world values. If the crop is all high quality, the market functions to encourage demand by trading equivalent with world values.
Russia pulled out of the Black Sea Grain Initiative on July 18. Talk in the trade is that insurance companies are not actively insuring cargoes. More importantly, Russia has bombed infrastructure and terminal structures in Odesa and other Black Sea ports.
At this stage, it’s hard to forecast Russian and Ukraine exports. It takes time for major importers to draw down stocks and purchase additional coverage. The market is bracing for a spike in demand in September and October.
In addition to Black Sea exports, there are five issues that traders are monitoring in the world market. The U.S. winter wheat harvest is in the final stages. U.S. farmer selling will subside later in September. The U.S. has a smaller exportable surplus compared to last year.
Secondly, dryer conditions on the Canadian prairies and North Dakota have trimmed yield prospects. U.S. and Canadian hard red spring wheat production will drop below year-ago levels and ending stocks for 2023-24 will drop to historical lows. We’re looking for spring wheat prices to experience a significant rally this fall.
Argentinean wheat production suffered last year due to a major drought and conditions are still a concern for the upcoming crop. Australia is contending with a dryer forecast and will experience a year-over-year decrease in production.
India is expected to be a wheat importer this year after dryer conditions resulted in lower production. China has quality issues with its wheat crop and will not let stocks decline after the food shortage in 2021-22. European production estimates have also been trimmed and excessive heat is resulting in lower corn production. Nearly half of the EU wheat crop moves into feed channels so this will result in lower exportable wheat supplies.
What to do: We’ve advised producers to be 100 per cent sold on old crop. Be patient to sell new crop. We’ll start our sales recommendations in October or November. This year, it’s more important than ever to be an incremental seller throughout the crop year to achieve an overall higher average price.
