We estimate that Ontario farmers have harvested approximately 85 per cent of the soybeans and 20 per cent of the corn crop as of early November. The six to 10-day forecast calls for normal precipitation along with seasonal temperatures. Soybean yield reports are better than expected; however, corn progress isn’t sufficient to assess yields beyond earlier reports while the crop was still developing.
Compared to Oct. 22, Ontario corn, soybean and wheat prices are unchanged to 15 cents per bushel lower. The corn and soybean futures markets continue to digest North American harvest pressure and there are no weather concerns regarding South America. As of Nov. 3, the U.S. soybean harvest was 75 per cent finished, similar to last year’s rating at 81 per cent complete and just down from the five-year average progress of 87 per cent. U.S. farmers had combined 52 per cent of the corn crop as of Nov. 3, down from 74 per cent at this time last year and down from the five-year average of 75 per cent. We expect to see decent progress over the next couple weeks and the markets have shrugged off concerns about unharvested acreage. At this stage, only North Dakota and Michigan are two states lagging significantly behind the five-year average for corn. There is no concern regarding soybeans.
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Quick look
Soybeans: Exercise patience in soybean marketing as there are several factors that could boost the market.
Corn: Basis levels are strong in parts of the U.S. which should help support overall price.
Wheat: The market is making a seasonal high in November and usually trends lower in December.
The Chilean summit planned for Nov. 16 and 17 between the U.S. and China was cancelled due to the ongoing protests and civil unrest in Santiago. President Trump stated that the U.S. and China were still planning to sign “Phase One” of the trade agreement within the same timeframe. “Phase One” was to represent or contain 60 per cent of the total deal and apparently 100 per cent of the agricultural issues are completed. Bloomberg reported last Friday that while both sides are getting closer on “Phase One,” Chinese officials are casting doubts about a long-term trade deal. Traders appear to be absorbing news on a day to day basis.
The U.S. Federal Reserve lowered its benchmark lending rate by 25 basis points in late October. This is bearish for the U.S. dollar, bullish for the equity and commodity markets. U.S. stock indexes made fresh record highs in early November.
Soybeans
Trade estimates for the Ontario soybean crop range from 3.9 million tonnes to as high as 4.2 million tonnes. This compares to the 2018 output of 4.2 million tonnes. The fundamentals for Canadian soybeans will tighten this year due to lower production in Western Canada. Total Canadian soybean production is expected to finish near 6.5 million tonnes, compared to 7.4 million tonnes last year. The Canadian domestic crush for 2019-20 is projected to finish near 1.9 million tonnes, similar to year-ago levels. The focus is on exports. It’s important to note that Canadian soybean exports for September were 391,100 tonnes, up from year-ago exports of 177,300 tonnes.
While China is on the sidelines, Iran has stepped forward for Canadian soybeans and we’re also seeing a sharp year-over-year increase to Europe. Total Canadian exports for the 2019-20 crop year are estimated at 4.7 million tonnes, down from the 2018-19 exports of 5.6 million tonnes. The Ontario soybean carryout for 2019-20 will be rather snug if the current export pace continues.
What to do: In my previous report, we advised producers to be 50 per cent sold on their 2019 production. There are a couple factors that we’re watching before making additional sales recommendations. First, the USDA will be out with their updated supply and demand projections on Nov. 8, after our publication deadline. While Canadian exports are running ahead of last year, U.S. soybean exports are sharply lagging year-ago levels. U.S. soybeans will be competitive with Brazil to non-Chinese destinations later in fall. This will cause U.S. soybean exports to improve.
We are also watching the U.S. China trade negotiations. Media reports suggest we could see a deal by the end of November. This could cause a spike in U.S. exports, which would cause the North American soybean market to rally. Secondly, South American crop conditions are quite favourable and there is no weather premium in the soybean market. Therefore, if we see any sign of crop stress, the market will be prone to incorporate a risk premium. We usually see a weather rally at least one time over the winter period due to South American weather. Let’s be patient on additional soybean sales and see how these factors play out.
Corn
Trade estimates for the Ontario corn crop range from 8.5 to nine million tonnes, which compares to the 2018 crop size of 8.8 million tonnes. Traders have varying views on how the crop will actually finish; however, at this stage, the size of the crops is immaterial. In the short term, the Ontario corn market is being held up due to tight old crop stocks and the delayed harvest.
We have a friendly bias towards the U.S. corn market, which should keep Ontario values well supported. The U.S. corn harvest is now over 50 per cent complete and harvest pressure will subside moving forward. Secondly, domestic basis levels are quite strong in Ohio and Illinois. It appears that the domestic market in the northern U.S. is functioning to ration demand by limiting export movement. U.S. corn exports have been lagging year-ago levels but we now find U.S. corn out of the Gulf of Mexico competitive with Brazilian origin on the world market. U.S. export demand will improve moving forward, which will also enhance domestic prices.
Finally, we believe that the Northern U.S. states will have lower yields, which will eventually result in a lower production estimate from the USDA. The corn futures are not bearish at the current levels. Finally, it’s important to note that the futures market spreads are narrowing. When the futures market spreads narrow, this is a signal that the commercials or the “smart money” are somewhat friendly to the market.
What to do: Earlier in summer, we advised producers to be 30 per cent sold on their 2019 production. There is a seasonal tendency for the corn market to rally after the U.S. harvest. Given the tighter U.S. fundamentals, the corn market will be very sensitive to South American weather during the key pollination phase. We believe the futures market could experience a rally later in winter. We’re advising producers to be patient on sales for the time being.
Wheat
Ontario winter wheat production is expected to finish at 1.4 million tonnes, down from the 2018 crop of 2.1 million tonnes. We estimate that 500,000 tonnes will be feed quality due to high fusarium levels. Milling wheat supplies in Ontario are rather snug and domestic values have been trading at a premium to world levels to curb exports. U.S. soft red winter wheat production was estimated at 6.5 million tonnes, down from the 2018 output of 7.8 million tonnes and down from the five-year average of 9.4 million tonnes. Without going into detail, the U.S. soft red winter wheat carry-out will drop to historically low levels at the end of the 2019-20 crop year.
Given the tight fundamentals in the U.S. and Canada for soft red winter wheat, the market has been functioning to encourage acreage. Winter wheat seeding is wrapped up but the market will maintain a risk premium until actual acreage is more certain. Statistics Canada releases their acreage in December while the USDA will provide winter wheat acreage in January.
The wheat market usually makes a seasonal high in November and then trends lower in December and January. The world market tends to soften when Australia and Argentina move through their harvest period. This year, the downward seasonal pressure may not be as defined in Ontario due to the lower 2019 production. In any case, we’re looking for Ontario wheat prices to slightly soften over the next month. The market is rationing demand and millers are using other lower priced wheats to satisfy their requirements.
What to do: This week, we’re advising producers to sell an additional 10 per cent of their milling wheat production bringing total sales to 60 per cent. The market is making a seasonal high and we want to be selling into this strength. Once the upcoming acreage is confirmed, larger new crop stocks will overhang old crop values. Once we move into December, the wheat market tends to trend lower.
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