As of Nov. 19, we estimate that Ontario farmers have harvested 93 per cent of soybeans and 50 to 60 per cent of corn.
It’s hard to assess the corn progress given the recent weather. Ontario received 150 to 200 per cent of normal precipitation over the past 30 days. Many farmers are coming to terms with the fact that they may have to wait until spring to finish.
Soybeans: Canadian soybean harvest will be about a million tonnes lower than last year.
Corn: U.S. export commitments down by half over 2018.
Wheat: Seasonal high in wheat now likely past.
The United States soybean harvest was 91 per cent complete as of Nov. 17, which compares to the five-year average progress of 92 per cent. About 76 per cent of the U.S. corn harvest was completed as of Nov. 17, down from the five-year average of 89 per cent. Corn, soybean and wheat futures have been trending lower over the past month as harvest progresses; however, Ontario elevator bids are relatively unchanged due to stronger basis levels.
Ongoing negotiations between the U.S. and China have failed to complete “Phase One” of a trade agreement. Media reports are mixed from day to day, which makes it difficult to gauge if significant hurdles have been agreed upon. White House officials concede that the target date will be pushed back from earlier expectations and there doesn’t appear to be a confirmed deadline.
The Canadian dollar has been under pressure over the past couple weeks. The Bank of Canada is expected to lower its benchmark rate at its December meeting. Canadian fiscal policy looks negative with ongoing deficits and no tax relief.
Comments from the U.S. Federal Reserve have been rather hawkish given the positive U.S. economic data; therefore, the U.S. dollar has strengthened against other major currencies.
The northern hemisphere harvest is basically finished. At this stage of the season, Canadian and U.S. soybean production is fairly certain. The Canadian crop is estimated at 6.5 million tonnes, down from 7.4 million tonnes last year.
The United States Department of Agriculture estimated the U.S. crop at 96.6 million tonnes, down from the 2018 output of 120.5 million tonnes.
The focus is turning to export demand and South American crop development. The 2018-19 exportable surplus from Brazil and Argentina has been consumed by this time of year. We now find U.S. soybeans out of the Gulf of Mexico competitive with Brazilian origin into Southeast Asia and other destinations. U.S. soybean export commitments for the week ending Nov. 7 were 22.3 million tonnes, up two per cent from a year-ago.
We lack official Canadian data at this time but trade estimates have Canadian exports running sharply above year-ago levels. The market is not bearish given the year-over-year decrease in production along with increase in export demand.
Brazilian soybean planting was about 70 per cent complete as of Nov. 17, which is similar to the five-year average. Early estimates have the Brazilian soybean crop around 123 million tonnes, up six million tonnes from last year. Argentine farmers have planted about 10 per cent of the crop and production is estimated at 53 million tonnes, down two million tonnes from last year. Conditions have been favourable so there is no weather premium in the market at this time.
Looking forward, we expect the Chinese government to allow purchases of U.S. soybeans now that values out of the Gulf of Mexico are competitive with Brazil. The fall period is when the soybean market experiences seasonally strong demand. Secondly, traders are factoring in perfect conditions in South America. At some frame of the growing season, the market will have a weather concern.
What to do: We’ve advised producers to be 50 per cent sold on their 2019 production. We feel the market is somewhat bullish from the current levels. We’re looking to make our next sale on a seasonal rally later in winter.
We mentioned in the previous issue that the Ontario corn market is being held up by tight carryout from the 2018-19 crop year and the delayed harvest. The domestic market is functioning to ration demand by trading at a premium to export values. Canadian crop year-to-date corn exports for the week ending Nov. 10 were only 12,500 tonnes, compared to 321,900 tonnes last year.
In the northern states such as Illinois and Ohio, basis levels are 50 to 80 cents per bushel higher than last year. These regions are functioning to attract supplies from neighbouring states where harvest is further advanced.
On the export side, U.S. sales commitments are down 47 per cent from year-ago levels. In the previous issue, we mentioned that U.S. offers out of the Gulf were competitive with Brazilian origin but we haven’t seen an increase in export sales. Currently, U.S. supplies are sufficient to cover domestic demand and until we see an increase in export activity, the corn futures will likely trade in a sideways-to-lower fashion. The fall period is usually when U.S. exports experience seasonally strong demand. This year, it’s not materializing.
Corn futures may experience a minor rally when the South American crop moves through pollination later in March but local Ontario basis levels would likely deteriorate.
Ontario elevator bids are around $5/bu. while ethanol producers are around $5.35. Prices for December delivery are similar to bids in the deferred positions.
What to do: The cash market is telling farmers to sell now instead of storing their crop. Farmers that have harvested a larger percentage of their crop should take advantage of the current basis. Earlier in summer, we advised producers to be 30 per cent sold on their 2019 production. This week, we’re advising producers to sell an additional 20 per cent of their production bringing total sales to 50 per cent.
In previous articles, we mentioned that the wheat market usually experiences a seasonal high in late October or early November. The March Chicago wheat futures reached up to $5.39 on Oct. 21; at the time of writing this article, the March contract had dropped 30 cents from the recent highs.
There are three main factors weighing on the market. First, the Australian and Argentine harvests will move into full swing over the next month and this usually results in softer world values. Secondly, the Northern Hemisphere winter wheat crops are moving into dormancy under favourable conditions. There are no weather or dryness concerns. Finally, the quality of the western Canadian wheat crop has come in better than expected. Minneapolis futures appeared to lead the wheat complex higher earlier in fall but this market is now nearing contract lows.
Ontario wheat prices have divorced from the futures market due to tight milling supplies. Soft red winter wheat stocks in Canada and the U.S. will drop to historically low levels at the end of the 2019-20 crop year. The soft red winter wheat market has been functioning to encourage acreage. Industry estimates have Ontario winter wheat acreage near one million. Last year, seeded acreage in the fall was also one million but harvested area was only 656,000 acres this summer. Usually, the harvested area is about 95 per cent of the seeded acreage from the previous fall.
We’re expecting a sharp year-over-year increase in Canadian and U.S. soft red winter wheat production for the 2020-21 crop year.
What to do: On the export side, it feels like wheat buyers have started the holiday season early this year because it’s very quiet. Keep in mind the world fundamentals are also burdensome. We’ve advised producers to be 60 per cent sold on their 2019 production. This week, we’re advising producers to increase sales to 70 per cent.
The Ontario cash market is expected to trade sideways to lower over the next couple months. When supplies are extremely tight, the market rations demand in the first half of the crop year. In the latter half of the crop year, the market trends lower as time erodes until new crop supplies are available. It’s important to have the bulk of the crop sold.