Ontario wheat, corn and soybean prices consolidated during the first half of February. Export demand for Ontario corn and soybeans moves through a seasonal low during winter.
At the same time, domestic soybean crushers have their nearby requirements covered. Feedlots and ethanol plants also have sufficient corn ownership. This environment causes spreads in the cash market to widen.
Quick look
Soybeans: Traders have lowered the U.S. soybean export projection due to the discount in Brazilian origin soybeans.
Corn: U.S. farmers are expected to plant five million fewer acres than in 2023.
Wheat: The wheat market will get very hot if Russia experiences adverse weather.
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Commercial stocks continue to hover at higher levels, with regular farmer selling limiting any strength in the corn and soybean markets. The Ontario winter wheat market is experiencing bullish undertones due to lower winter wheat acres and potential for significant winterkill. The wheat market appears to be transitioning from a burdensome supply situation to a rather snug fundamental structure for 2024-25.
World markets are focused on South American weather. The Argentine corn and soybean crops continue to develop under favourable conditions, resulting in higher production forecasts. Argentina is the world’s largest exporter of soybean meal and oil. Argentine corn exports will dominate the world market in late spring and summer.
Analysts continue to lower Brazilian crop estimates due to adverse weather. U.S. corn prices appear to be most competitive on the world market while Brazil continues to dominate soybean exports.
This spring, U.S. farmers will decrease the corn planted area by five million acres while increasing soybean acreage by a similar amount.
On Jan. 30, the temperature in Maple Creek, Sask., reached 21 C. We’ve never lost a Canadian wheat crop in January but this weather trend doesn’t look positive for production.
The Canadian dollar continues to trade in a range with support at US$0.74 and resistance at US$0.75. It appears Canada avoided a technical recession. The 2023 fourth quarter GDP came in at 1.2 per cent after contracting in the third quarter. U.S. economic growth is also coming in stronger than expected.
Oil prices tend to experience a seasonal rally during the late winter and early spring period. This could be enhanced by military turmoil in the Red Sea. Outside influences should be supportive for Ontario grain and oilseed markets.
Soybeans
The Ontario soybean market is relatively unchanged from two weeks earlier. Domestic crusher bids continue to hold a premium over elevators sourcing for offshore movement. Ontario soybean exports slow from January through March and then increase during April as the lakes open.
Demand for Ontario soybeans makes a seasonal high in April, May and June as exports increase and the domestic crush pace continues to run at higher levels. On-farm stocks drop to lower levels in May, which causes domestic crushers to increase imports. This is when the basis tends to make a seasonal high.
At the time of writing, Brazilian soybeans were valued at US$411/tonne f.o.b. Paranagua while Argentine soybeans were quoted at $460/tonne f.o.b. tidewater. U.S. soybeans were offered at $478/tonne f.o.b. the Gulf. Ontario soybeans were quoted at US$470/tonne f.o.b. St. Lawrence port. The Argentina market is experiencing stronger domestic demand for processing soybean meal and oil for export.
It’s interesting to note that trade discussions have a major poultry firm on the U.S. east coast buying three cargoes of Brazilian soybeans for February shipment. Traders are lowering the U.S. soybean export projection and increasing the carryout, given the sharp discount of Brazilian origin relative to the U.S.
Brazilian soybeans were 10 per cent harvested as of Jan. 31. Trade estimates now have the Brazilian soybean crop in the range of 145-150 million tonnes, down from the USDA estimate of 157 million tonnes and down from last year’s crop size of 160 million tonnes.
Planting of the Argentinean soybean crop has wrapped up and conditions point to a crop size of 50-52 million tonnes. This compares to the USDA estimate of 50 million tonnes and doubles last years production of 25 million tonnes. The Argentine soybean harvest starts in March and moves into high gear in April.
U.S. soybean ending stocks for the 2023-24 crop year are expected to reach 7.6 million tonnes, up from 7.2 million tonnes last year. We’re factoring in a year-over-year increase in acreage of 4.6 million acres. Production has potential to reach 121 million tonnes, up from the 2023 output of 113 million tonnes. The 2024-25 carryout will swell to 11 million tonnes.
On a side note, Donald Trump is expected to win the U.S. election this fall. There will likely be an increase in tariffs on Chinese products. China will retaliate with tariffs on U.S. soybeans. This will come in the latter half of the 2024-25 campaign.
What to do: We’ve advised Ontario farmers to be 60 per cent sold on 2023 production. This week, we’re advising farmers to increase sales by 10 per cent, bringing total sales to 70 per cent for the 2023 crop. We’re also advising farmers to sell the first 10 per cent increment of their 2024 expected soybean production.
Corn
We believe the Ontario corn market is moving through a seasonal low. To reiterate the previous issue, Ontario corn exports from Jan. 1 through March 31 are estimated at 1.5 million tonnes. From April 1 through July 31, corn exports are expected to reach 4.5 million tonnes.
Keep in mind cattle on feed inventories in Ontario tend to reach seasonal highs from March through May. Demand for Ontario corn is expected to surge during spring. Ethanol users have their nearby requirements covered, so the domestic feed market will be dictated by export values as this is the largest source of demand.
During the first week of February, U.S. corn was offered at $205/tonne f.o.b. the Gulf. There were no firm offers for Brazilian corn but indications were $224/tonne f.o.b. Paranagua. Argentine corn was quoted at $222/tonne f.o.b. tidewater port.
Available stocks in Brazil are tightening and the domestic market is premium to export values. French corn was offered at $215/tonne f.o.b. La Pallice. Ontario corn was quoted at $208/tonne f.o.b. St. Lawrence port.
Ontario corn appears to be competitive into Ireland for April, May and June. We’re also looking for a larger push into the U.K. in the spring and summer. Lower wheat acres in France and Germany will support the feed complex in Europe.
Argentine corn exports increased during January as the government devalued the currency. The trade feels comfortable with the USDA’s Argentinean crop estimate of 55 million tonnes, although some estimates are as highs as 57 million tonnes. Exports could reach 41 million tonnes, up from last year’s exports of 23 million tonnes. Brazil’s upcoming crop is estimated at 110-115 million tonnes, down from the previous year’s output of 137 million tonnes.
The U.S. corn market is functioning to encourage demand. U.S. corn export sales for the 2023-24 crop year are running 35 per cent ahead of last year. At lower prices, the market also discourages production.
We’re expecting U.S. farmers to plant 89.5 million acres of corn this spring, down 5.1 million acres from the last year. Using an average yield of 174 bu./acre, U.S. corn production has potential to finish near 361 million tonnes, down from the 2023 crop size of 390 million tonnes and down from the five-year average of 365 million tonnes.
The lower U.S. corn production will cause corn futures to trade in the range of $5.50-$6.50/bu. next winter. During June 2023, the corn futures rallied $1/bu. on a hot, dry weather forecast. We expect to see this type of volatility occur again, especially due to the lower acreage.
The market cannot afford a crop problem or the fundamentals become extremely tight. The export market will not have the “Brazil cushion” during the 2024-25 campaign. Argentina will have liquidated its exportable surplus by October. Therefore, the U.S. market will determine the world price structure next winter.
What to do: We’ve advised farmers to sell 50 per cent of their 2023 corn production. Demand for Ontario corn will make a seasonal high in the spring and early summer. We’re expecting a weather rally in the futures market during the spring or summer. These two factors will provide a good opportunity for making sales.
Wheat
Ontario produced 2.7 million tonnes of winter wheat in 2023, up from the 2022 crop size of 2.2 million tonnes and up from the five-year average of 2.1 million tonnes. Larger production has resulted in a weaker basis for Ontario winter wheat. This will change in the 2024-25 crop year.
For 2024, we’re expecting Ontario winter wheat output to finish in the range of 1.8 to two million tonnes. Winterkill will be slightly larger than normal and we’re using an average yield of 88.0 bu./acre. The lower production will result in a stronger basis next winter.
The spring wheat carryout in Western Canada will drop to historical low levels at the end of the 2023-24 crop year. Canadian crop year-to-date non-durum wheat exports for the week ending Jan. 21 were 10.2 million tonnes, up 700,000 tonnes from last year.
Given the year-over-year decrease in non-durum wheat production, exports cannot continue at the current pace in the later part of the crop year.
In Western Canada, the weather trend is for below normal precipitation and above normal temperatures. It appears Western Canada is heading into drought-like conditions on the heels of historically tight wheat stocks.
In the 2024-25 crop year, Ontario winter wheat will need to trade above world values to ration demand. The premium over the world market will be enhanced if adverse weather occurs during harvest, lowering the quality of the crop.
Ontario usually produces about 130,000 tonnes of spring wheat. Spring wheat may be the sleeper crop in 2024-25. We could see spring wheat divorce from the overall wheat complex if adverse weather conditions materialize this summer.
France and Germany decreased their winter wheat acres by eight to 10 per cent last fall. U.S. farmers decreased hard red winter acres by six per cent. A year-over-year decrease of 9.2 per cent was noted for U.S. soft red winter area.
The wheat market was functioning to discourage production and producers around the world responded accordingly. This comes on the heels of an Australian wheat harvest of 25.5 million tonnes, down 15 million tonnes from last year.
The world has become too dependant on Russia. All the eggs are in one basket. Current conditions are favourable in Ukraine and Russia. If there is a problem in Russia during the growing season, the wheat market will get hot very quickly. This is often the case when the world relies too heavily on one major exporter. There has been a good moisture recharge in Russia but temperatures are also above normal.
What to do: We’ve advised producers to be 60 per cent sold on their wheat. The wheat market tends to incorporate a risk premium when the Northern Hemisphere winter wheat comes out of dormancy. Every morning, all wheat traders look at the 30- to 45-day weather forecast for the Russian winter wheat region. The wheat market will strengthen on any sign of a production problem in Russia.
