During the final week of February, Ontario soybean prices were hovering around $17 per bushel, while elevator corn bids were slightly below $7 per bushel.
Soybeans: Canadian soybean export and domestic use are both up over a year ago.
Corn: Ethanol margins are higher, but processors seem to be well stocked.
Wheat: Export values for wheat remain high.
Farmer selling in Ontario has slowed during January and February despite the historically strong elevator bids.
At the same time, domestic and export demand for soybeans, corn, and wheat continues to exceed year-ago levels.
Corn and soybean stocks on-farm are expected to be similar to year-ago levels at the end of February. Deliveries tend to be minimal during spring planting, therefore, it looks like we’ll see the bulk of the supplies come into the commercial system in the latter part of the crop year.
This will likely pressure local basis levels after the planting period.
Soybean harvest progress in Brazil is lagging last year’s pace by a couple weeks due to excessive rain. This has also slowed the planting of second crop corn, known as the safrinha crop.
The bulk of the safrinha corn crop will likely move through pollination during seasonally high temperatures in June, which may temper overall yields. Brazilian soybeans are now discount to United States origin into China although logistical and loading delays are a concern in the short term.
Argentine corn is also discount to U.S. offers out of the Gulf of Mexico. This may temper export demand for U.S. soybeans and corn moving forward. The U.S. Department of Agriculture lowered the 2020-21 ending stocks for corn and soybeans on the February World Supply and Demand Estimates (WASDE).
The world is no longer comfortable with past stock levels of grains and oilseeds. Therefore, tight ending stocks projections are having more of an effect on the market and prices will be sensitive to northern hemisphere growing conditions.
The Canadian dollar continues to appreciate against the U.S. greenback. Demand for resources and commodities is expected to surge in coming months.
Crude oil continues to percolate higher and equity markets appear to have further upside potential. Short-term bond yields are under pressure but longer-term yields are factoring higher interest rates and an inflation risk premium.
There is potential for a super commodity boom similar to 2007, which would result in further upside in the Canadian dollar.
Canadian crop year-to-date soybean exports for the week ending Feb. 14 were 3.3 million tonnes, up just over one million tonnes from year-ago levels. Domestic disappearance was 915,400 tonnes, compared to 851,500 tonnes last year.
Ontario soybeans are competitive with U.S. origin in the short term, however, for April through June, it appears that Brazilian soybeans are more competitive with Ontario soybeans, which may limit further upside in the market. Secondly, it appears that the Ontario farmer will be an aggressive seller in the latter part of the crop year. Producers must be aware of current export economics.
On the February WASDE report, the USDA estimated Brazilian soybean production at 133 million tonnes, up from 126 million tonnes last year. Argentine production was projected to finish at 48 million tonnes, down one million tonnes from year-ago levels.
Adverse rain has limited harvest progress and vessel loading in Brazil but conditions are expected to improve later in March.
The USDA forecast U.S. soybean ending stocks to come in at 3.25 million tonnes, which is bin bottom levels. The U.S. has very tight stocks to contend with and there is no sign the domestic crush pace is slowing down.
U.S. farmers are expected to plant 90 million acres of soybeans this spring up from 83 million acres last year.
Ontario farmers are expected to seed 3.2 million acres of soybeans, up from 2.9 million acres in 2020. Given the tight carryout stocks from 2020-21, the soybean market will be very sensitive to U.S. growing conditions.
What to do: We advised Ontario farmers to be 100 per cent sold on their 2020 production and 20 per cent sold on expected new crop. Over the next month, we’re going to see the South American harvest advance, which will weigh on world values. Brazilian production is expected to be up from last year and the soymeal export pace will improve from Argentina. We could see pressure on soybean crush margins.
We’re expecting a year-over-year increase in U.S. and Ontario soybean production.
Producers need to keep prices in perspective from a historical standpoint.
We mentioned in the previous issue that the Ontario corn fundamentals were not overly tight. Exports have come to a standstill for the time being with the lakes closed.
Ethanol margins have improved with higher energy prices, but processors appear to be well covered for their nearby requirements. The domestic market is relying on feed demand to sustain prices at the current levels. Cattle-on-feed inventories are at seasonal highs but will start to decline in spring. It’s hard to justify further upside in the short term.
On the world market, Argentine values are a slight discount to U.S. offers out of the Gulf as the corn harvest is in the early stages. The USDA estimated the Argentine corn crop at 47.5 million tonnes, unchanged from last month but down from 51 million tonnes last year.
In Brazil, the main safrinha corn crop is 36 per cent planted compared to 80 per cent last year. The harvest will begin about two weeks later than normal and only move into full swing in late June. This will cause export values to remain under pressure during the summer.
The USDA projected 2020-21 ending stocks to come in at 38 million tonnes on the latest WASDE report. Traders were expecting ending stocks to be in the range of 28 to 35 million tonnes so this was viewed as slightly bearish for the market.
Exports are exceeding expectations but the USDA will likely make adjustments on a month-by-month basis and keep estimates very conservative. The main point is that the U.S. corn fundamentals may not be as tight as earlier anticipated.
At the USDA Agriculture Outlook Conference, U.S. corn acre for 2021 were projected to reach 92 million, up 1.2 million from the seeded acreage of 2020.
What to do: We’ve advised Ontario farmers to be 80 per cent sold on their 2020 production. The Brazilian second corn crop is not even planted yet and we’ll only have a good idea of U.S. acreage later in March.
There is a fair amount of uncertainty in the corn market over the next four to six months so we’ll be patient to make additional recommendations.
Ontario elevator bids for soft and hard red winter wheat are relatively unchanged from last month. Canadian non-durum wheat exports continue to exceed year-ago levels.
We mentioned in the previous issue that offshore demand for soft red winter wheat has been stronger than anticipated. U.S. soft red winter wheat stocks are expected to drop to historical lows at the end of the 2020-21 crop year. That means Ontario soft red winter wheat exports to the U.S. are expected to increase in the latter part of the crop year.
Export values remain elevated for four main reasons:
- The Russian floating export tax is now in effect.
- Ukraine exporters are expected to reach their quota in mid-March.
- Strength in the corn market has underpinned the wheat complex due to the feed component. Europe has the largest compound feed market where wheat is used in feed rations.
- Stocks among major exporters are expected to be down sharply from earlier projections. Europe ending stocks will likely finish under 10 million tonnes, down from the five-year average of 14.7 million tonnes. Canadian non-durum ending stocks will likely come in near 3.6 million tonnes, down from the five-year average of 4.7 million tonnes; U.S. hard red winter wheat stocks will also finish below the five-year average.
What to do: We’ve advised Ontario farmers to be 80 per cent sold on their 2020 production. We’re waiting to make our final sales recommendation. The winter wheat markets usually incorporate a risk premium when the Northern Hemisphere crops come out of dormancy.
The U.S. Southern Plains and the Russian Southern District is on the drier side heading into spring.
We’re looking for a sharp year-over-year decline in Canadian and U.S. spring wheat acres in 2021.
The rally in the corn market may not be over just yet because of the situation in Brazil.
These factors may give wheat one more upward burst.