From March 15 through April 15, southern Ontario received above normal precipitation with some areas receiving as much as 100 to 125 millimetres of rain. Temperatures were two to three degrees below normal. The weather trend is cool and wet.
U.S. and Ontario farmers could plant corn and soybeans 10-15 days later than normal, which will make the crop vulnerable to adverse weather during the fall. There is potential for a minor rally due to the uncertainty in production. After the crops are planted, markets tend to trend lower because moisture conditions will be optimal. June and July are seasonally bearish months for corn, soybeans and wheat. Wheat makes a seasonal low in late July and early August.
Quick look
Soybeans: It’s likely Brazil will have a bumper crop, and the U.S. crop is poised to come in slightly higher than last year.
Corn: There is strong competition among all major exporters.
Wheat: Spring and winter wheat crops in Canada are projected to surpass 2022 harvest levels.
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Ontario wheat prices have come under pressure due to lower than expected export demand. Aggressive offers from the Black Sea region continue to weigh on world values. Favourable weather has enhanced yield forecasts for U.S. soft red winter wheat.
Once again, Russian officials have stated they will not renew the Black Sea Grain Initiative beyond May 18 unless their full demands are met. Russian wheat output will be down from last year. As of April 12, Argentine soybeans were four per cent harvested while farmers had combined 10 per cent of the corn. The harvest of the record Brazilian soybean crop has wrapped up and planting of the main Safrinha corn crop is complete. Brazilian corn and soybean offers are now lower than U.S. origin.
European crops are developing under favourable conditions. The trade is expecting a year-over-year increase in European corn and wheat output. This will lower demand for Ontario corn in the 2023-24 crop year. Statistics Canada will release its March 31 stocks report on May 9. The government organization will release its first 2023 acreage estimate on April 26.
The trend in the Canadian dollar is to appreciate against the U.S. greenback and other major currencies. This will weigh on Ontario grain and oilseed prices. The Bank of Canada has paused interest rate hikes for the time being but don’t expect decreases in the 2023 calendar year. OPEC has recently cut its production and crude oil prices have rallied $18/barrel from the March lows. The fight against inflation will likely take a couple more years. The theme from all central bankers is maintaining higher rates for longer.
Soybeans
We’re projecting Ontario on-farm stocks as of March 31 to come in at 830,000 tonnes, up from the March 31, 2022, level of 600,000 tonnes. Commercials have been holding sufficient stocks to cover export and domestic demand, resulting in limited drawdown in on-farm supplies over the winter.
During the spring, Ontario crushers usually import about 200,000 tonnes of soybeans from the U.S. Given the year-over-year increase in on-farm stocks, imports will be limited this year. Ontario farmers will likely sell 800,000 tonnes of soybeans from April 1 through July 31. Don’t expect basis appreciation. Commercial ownership of soybeans will remain elevated to satisfy export and domestic demand from April 1 through July 31.
As of April 13, Brazilian soybeans were valued at US$498/tonne f.o.b. Paranagua, down $27/tonne from two weeks earlier. U.S. soybeans were quoted at $592/tonne, down only $2/tonne from the first days of April. Ontario soybeans were valued at US$550/tonne f.o.b. Hamilton. Ontario and U.S. soybeans are trading at a sharp premium to Brazilian origin. This limits soybean exports but also weighs on domestic crush margins.
Trade estimates have Brazilian soybean production in the range of 154-157 million tonnes, up from last year’s crop of 130.5 million tonnes. Argentine output will likely finish near 27 million tonnes, down 16 million tonnes from last year. U.S. production for 2023 has potential to finish near 118 million tonnes, up from 2022 output of 116.4 million tonnes.
Argentine production has less of an influence on the world market because farmers use soybeans as an inflation hedge. For the 2022-23 crop year, the Argentine carryout will likely finish over 18 million tonnes. Brazil’s ending stocks will reach 33 million tonnes whereas U.S. supplies will dip under six million tonnes. High inflation causes farmers to hold onto stocks.
What to do: We have advised farmers to be 100 per cent sold on their 2022 output and 15 per cent sold on expected 2023 production. After planting, the Ontario soybean market is expected to trend lower. Exports will be limited and commercials have sufficient ownership to cover domestic requirements. Late in the crop year, elevator prices trend lower and export offers become more aggressive. Commercials liquidate stocks prior to harvest.
Corn
Ontario on-farm corn stocks as of March 31 are estimated at three million tonnes, while commercial stocks are projected to come in at four million tonnes. Domestic demand from April 1 through Aug. 30 is estimated at four million tonnes. The total Ontario corn carryout (on-farm and commercial stocks) will likely finish at two million tonnes, which leaves about one million tonnes for export.
Ontario corn is lower priced than Brazilian and U.S. origin. However, recent weakness in the French market has limited export demand for Ontario corn in Northern Europe. Brazilian corn is offered at US$288/tonne f.o.b. Paranagua; U.S. corn is valued at $295/tonne f.o.b. the Gulf. French corn is offered at $255/tonne f.o.b. La Pallice and Ontario corn is priced at US$272/tonne f.o.b. St Lawrence port. Ontario corn prices are currently uncompetitive.
The U.S. corn crop will likely be planted 10-14 days later than normal. This later planting comes at the same time as U.S. ending stocks will drop below the five-year average. As of April 11, the managed money was long an estimated 29,000 contracts on the corn futures.
We believe the market will incorporate a risk premium due to uncertainty in production due to the late planting period. This will cause the managed money to build a long position over 100,000 contracts. This could cause the Ontario cash corn market to rally 50-60 cents/bushel. Use this rally as an opportunity to catch up on sales.
Looking at the forecast, we’ll see an open window for planting in the main states of Iowa and Missouri after May 5. After the U.S. corn crop is planted, the corn market will trend lower through June and July. Seasonal lows are typically made just before the main U.S. harvest period.
The main Brazilian harvest will move into high gear in June 2023. Total Brazilian corn production is expected to reach 125 million tonnes, up nine million tonnes from last year. The upcoming U.S. crop is projected to touch 385 million tonnes, up 36 million tonnes from the 2022 output.
The function of the corn market during the summer period is to encourage demand through lower prices. Ontario needs to export one million tonnes of corn in the summer and there will be strong competition from all major exporters.
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. There is significant downside risk in the corn market after June.
Wheat
Ontario wheat prices have dropped to 52-week lows. Export demand has come to a standstill and domestic flour millers are well covered until new-crop positions. In the previous issue, we advised farmers to finish sales on their 2022 production.
According to Statistics Canada, Ontario farmers planted 1.345 million acres of winter wheat last fall, up from 849,000 acres 12 months earlier. Using a traditional abandonment rate and trend yield, Ontario winter wheat production has potential to reach three million tonnes, up from the 2022 crop size of 2.227 million tonnes. The demand for a crop of this size includes one million tonnes for domestic milling, 1.3 million tonnes for export and then, depending on quality, 700,000 tonnes for domestic feed use.
Russian authorities have stated that Russia will not extend the Black Sea Grain Initiative beyond May 18 unless the West removes export restrictions and obstacles for Russian exports. This includes the reconnection of the agriculture bank (Rosselkhozbank) to the SWIFT payment system. Russia is also demanding resumption of the Togliatti-Odesa ammonia pipeline. Finally, many Russian companies that export grain and fertilizer have their assets and accounts frozen. These accounts need to be accessible for Russian companies.
The negotiations are strictly confidential and demands can change overnight. There is always some leakage but traders never know if the rumours are true. This could cause significant volatility in the wheat market.
If the market does rally, it’s an opportunity to make sales on new crop wheat. Eventually, Russia will need to export its upcoming crop, estimated at 85 million tonnes. While this is down 15 million tonnes from last year, it’s still a big crop.
The European wheat crops continue to develop under favourable conditions. Total EU soft wheat output is projected to reach 132 million tonnes, up six million tonnes from last year. The U.S. Southern Plains are expected to receive timely rains over the next 30 days. U.S. hard red winter wheat output is expected to finish near 22 million tonnes, up 7.6 million tonnes from last year. U.S. soft red winter is forecasted to come in at 12.3 million tonnes, up 2.2 million tonnes from the 2022 crop.
U.S. soft red winter yield may reach a record this year. U.S. farmers sell nearly 50 per cent of their crop in the summer months. European farmers also sell a large portion right at harvest. Russian farmers need movement at harvest because they need the cash.
We’re projecting a Canadian hard red spring wheat crop of 27 million tonnes, up from 25.7 million tonnes last year. U.S. hard red spring output is expected to finish near 12.2 million tonnes, unchanged from last year.
What to do: If the wheat market rallies due to Black Sea uncertainty, it is an opportunity to sell 20 per cent of new crop production. If you’re still holding old crop stocks, this would be a good time to liquidate remaining supplies. The U.S. hard red winter wheat crop always turns out better than expected. Keep in mind, Russia needs to eventually export its wheat crop.
