In this update, we’re providing our first acreage and production estimates for Ontario. Elevator bids for corn, soybeans and wheat are relatively unchanged from late March.
The United States Department of Agriculture Prospective Plantings report was considered bearish for corn and soybean markets; however, traders are analyzing seeding conditions and making acreage adjustments due to adverse weather.
Another winter-type storm is expected to wreak havoc across the Midwest over the next seven days. While North American markets contend with production uncertainty, the South American harvest is in full swing and yields are better than expected. Export offers from Brazil and Argentina are more competitive than U.S. offers out of the Gulf of Mexico and Canadian offers out of the Great Lakes. The world corn and soybean markets will continue to absorb South American harvest pressure over the next couple months.
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A U.S.-China trade deal is imminent, if you’re using glacier calibration to measure progress. The latest round of trade talks between the U.S. and China wrapped up recently with both sides agreeing to continue talks via video conference. In negotiations, video conference instead of face-to-face dialogue sounds like a step backward and was viewed as such by commodity traders.
The Canadian dollar has been strengthening as crude oil futures trade near six-month highs. The Alberta Select discount to West Texas Intermediate continues to hover around US$11/barrel, much better than US$40/barrel the last time crude oil futures were above $64. Better than expected manufacturing data from the U.S. and China has alleviated fears of a severe global recession. The higher risk sentiment was favourable for the currencies of resource-based economies like Canada. The competitive advantage of a weaker currency has eroded for Ontario farmers. We’re expecting the Canadian dollar to strengthen between now and harvest.
Quick look:
Soybeans: Ontario soybean acres are expected to jump eight to 15 per cent.
Corn: Ontario corn acreage is expected to drop 10 per cent this year.
Wheat: Wheat planted last fall was over a million acres in Ontario.
Soybeans
Statistics Canada will be out on April 24 with its prospective plantings survey. The trade is expecting a sharp drop in western Canadian soybean acres while Ontario acres could be up eight per cent to as much as 15 per cent. We’re using a year-over-year acreage increase of 10 per cent and an average yield of 45.9 bushel per acre, which would result in Ontario production of 4.1 million tonnes, up from 3.9 million tonnes last year. Larger production will result in a very weak Ontario basis during harvest.
Earlier in March, U.S. farmers intended to seed 84.6 million acres of soybeans, down from 89.2 million acres last year. At this stage, acreage could be in the range of 84 to 85.5 million acres. There are two trains of thought: the flooding may result in a larger abandonment rate, while some traders believe delayed seeding may result in larger soybean acres at the expense of corn and spring wheat.
Brazilian farmers harvested 85 per cent of the soybean crop as of April 5. The Argentine harvest is about eight per cent complete. On the world market, Argentine and Brazilian soybeans are offered at a sharp discount to U.S. and Canadian origin, which is curbing North American offshore movement. South America will dominate the world market from now until harvest. The market is functioning to encourage demand through lower prices.
What to do: We’ve advised farmers to be 80 per cent to 90 per cent sold on old crop soybeans and 20 per cent to 30 per cent sold on new crop. Producers following our advice are in good shape to endure the ongoing drama between the U.S. and China. The world will be awash with soybeans come fall and we’ve ensured movement at decent prices for cash flow and alleviated storage concerns.
Corn
We’re expecting Ontario farmers to plant 1.9 million acres of corn, down 10 per cent from 2.2 million acres last year. Using a five-year average yield of 160 bushels per acre production has potential to come in at 7.6 million tonnes, down 1.2 million tonnes from the 2018 output of 8.8 million tonnes. This lower production coming on the heels of a rather tight carryout in Ontario. The domestic Ontario market is currently rationing demand by trading at a premium to world values. During the summer, farmer selling will slow down and the market will be sensitive to yield potential. We are going to use rallies as selling opportunities because the world coarse grain situation looks burdensome for new crop.
The USDA prospective planting survey had corn acres at 92.8 million, which was on the high side of pre-report trade estimates of 90 to 92.2 million acres. Last year’s acreage was 89.1 million. The market appears to be shrugging off the flooding in Nebraska, Iowa and Missouri because it’s still early. Industry sources suggest that 400,000 to 600,000 acres will probably not be seeded. Given the year-over-year increase in acreage this isn’t significant enough to influence the market. Using a trend type yield, U.S. corn production could reach 378 million tonnes, up from 366 million tonnes last year. It’s important that farmers realize the U.S. corn exports, feed and ethanol use is coming in lower than expected.
The Argentinian corn harvest is about 15 per cent complete.
Brazil’s second safrinha corn crop is in good condition. Approximately 25 per cent of the crop is pollinating at this time and there are no extreme heat concerns. The Ukraine corn crop is nearly all seeded and the eastern half of the country is on the drier side.
Argentine corn is offered at US$157/tonne fob for May. U.S. corn is offered at US$167/tonne fob the Gulf for May, while Ukraine corn is offered at US$172/tonne fob the Black Sea.
What to do: We’ve advised farmers to be 80 per cent sold on old crop and 20 per cent sold on new crop. Our strategy is to wait for a summer rally during the heat of July and finish old crop sales. At the same time, we’ll recommend additional sales for new crop for December or January delivery. The futures market spreads will be wide, which tells farmers to sell into the deferred months.
Wheat
On the December Statistics Canada survey, Ontario farmers stated they planted one million acres of winter wheat. Using a traditional abandonment rate and a five-year average yield of 82.9 bushels per acre, winter wheat production has potential to reach 2.2 million tonnes, up from the 2018 output of 2.1 million tonnes. We’re also projecting 100,000 acres of spring wheat, which could result in production of 177,000 tonnes up from 2018 spring wheat crop of 120,000 tonnes
The USDA estimated soft red winter wheat acreage at 5.6 million, down marginally from 5.9 million acres last year. Using a five-year average yield of 63.3 bushels per acre, production has potential to reach 7.1 million tonnes, down from 7.8 million tonnes last year. Without going into detail on demand, the U.S. soft red winter wheat carryout will dip to 3.1 million tonnes, down from the 2018-19 ending stocks of 4.6 million tonnes and down from the five-year average carryout of six million tonnes. The U.S. soft red winter wheat fundamentals are historically tight for 2019-20.
Currently, U.S. soft red winter wheat out of the Gulf of Mexico has been more competitive than Russian origin into Egypt. Once Russian offers dominate the Egyptian market later in May, then we’ll see U.S. soft red winter wheat prices deteriorate. There’s not much time to sell remaining old crop stocks.
For new crop, the function of the U.S. soft red winter wheat market is to ration demand. The domestic U.S. market needs to trade at a premium to world values to curb exports and also encourage imports from Ontario. The Chicago wheat futures will likely maintain a premium over the Kansas wheat futures. We’re looking for a stronger domestic basis in the upcoming crop year while the Chicago futures continue to set the price structure for the world wheat market.
What to do: We’re currently 70 per cent sold on old crop wheat and we haven’t recommended any new crop sales. At most Ontario locations, old crop soft red winter wheat price is around $5.90/bushel while new crop prices are at similar values. The cash market is telling farmers to sell now for immediate delivery. Let’s listen to the market and sell an additional 15 per cent to 20 per cent of the 2018 wheat production.
