To say Ontario fields are saturated is an understatement. During the last half of October, the region southwest of Toronto received 60 to 90 millimetres of precipitation; farmers north of Toronto received 30 to 90 mm of rain while the Ottawa region also received 60 to 90 mm.
The slower than expected harvest pace in Ontario has resulted in stronger domestic basis levels. Farmers are waiting for a freeze-over because the chances of fields drying out over the next month are slim.
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Critical growing season ahead for soybeans
This year’s smaller soybean acreage puts the onus on yields, if last year’s supply is to be maintained. The most critical yield-determining month for U.S. soybeans is August.
Soybeans: The Ontario crop size is projected at 4.3 million tonnes but 30 per cent is still out in the field.
Corn: The harvest lows for the corn market are likely in place, but higher prices are expected.
Wheat: Ending stocks as of July 31, 2022 are expected to be 130,000 tonnes, down from 330,000 tonnes on July 31, 2021. This will be the lowest of on-farm stocks since July 31, 2008 when Ontario supplies were a meager 18,000 tonnes.
Ethanol margins are historically strong, enhancing the local price structure for corn. Domestic wheat prices continue to percolate higher in line with the seasonal tendency. Ontario winter wheat acres will be down this fall given the late soybean harvest. We estimate that Ontario farmers had harvested 30 per cent of the corn and 70 per cent of the soybeans as of Oct. 30.
As of that date, the U.S. Department of Agriculture estimated the U.S. corn harvest at 74 per cent complete while the soybean harvest was 79 per cent complete. Argentina received below normal precipitation over the past 30 days as of Oct. 30, while Brazil received average to slightly above average rainfall.
Argentine farmers had planted nearly 30 per cent of the corn crop but less than five per cent of the soybean crop at the end of October. In Brazil, farmers had seeded approximately 45 per cent of the soybean crop as of Oct. 30. Nearly two-thirds of Brazil’s first crop corn is in the ground. Seeding is on schedule in South America but Argentina needs rain.
Wheat offers from major exporters continue to percolate higher due to tight fundamentals. However, the southern hemisphere harvest will temper the upside in the world market later in November. Ocean freight rates are at or near historical highs on traditional trade patterns.
Strong energy prices are supporting corn and soybean markets. Major North American equity indexes continue to trade near historical highs. Despite strength in crude oil and record equity valuations, the Canadian dollar has struggled to move back to the June highs. The overriding factor is a hawkish tone from the U.S. Federal Reserve, which has tempered Canadian dollar appreciation against the greenback.
We’re looking for strength in the Canadian dollar during the first quarter of 2022. Inflation readings continue to increase, which is a factor underpinning grain and oilseed markets.
Soybeans
Slower harvest progress along with seasonally strong demand has set a positive tone for the Ontario soybean market. The Canadian soybean carryout was historically tight so the domestic cash market is sensitive to slower harvest. Available supplies in the commercial system are barely sufficient to cover nearby export and domestic requirements.
Ontario soybean exports for November and December are projected to be approximately 400,000 tonnes per month. The Ontario crush is expected to reach 200,000 tonnes per month for the same period. Total demand for November is approximately 600,000 tonnes per month.
The Ontario crop size is projected at 4.3 million tonnes but 30 per cent was still in the field at the end of October. The domestic market is functioning to attract farmer selling in the short term. It’s difficult for the market to pull this type of volume from farmers under the current environment. There could also be quality issues on the volume that remained in the field.
Export offers for Ontario soybeans are in line with U.S. offers out of the Gulf. For the week ending Oct. 21, U.S. soybean export commitments were 30.5 million tonnes, down 35 per cent from last year. It appears that the U.S. market will function to encourage export demand. The soybean futures have been holding value due to the delayed U.S. harvest. However, once the harvest nears completion, the market will likely come under pressure.
North American beans are discount to Brazil through January. From February onward, Brazilian soybeans are discount to U.S. and Canadian origin. We’ll likely see Ontario prices soften later in March because of lower world values. Argentine and Brazilian soybean production is expected to be up a combined five to seven million tonnes from last year. It’s still early in the growing season. The world market will likely hold value until the South American crop is more certain.
What to do: We’ve advised Ontario farmers to be 50 per cent sold on their 2021 production. That’s enough for now. We still have the South American growing season ahead. Argentina is on the dry side. If adverse weather continues to delay the Ontario and Midwest harvest, available supplies may be lower than expected.
Corn
Ontario elevator corn bids are up 50-70 cents/bushel from mid-October. Farmers are waiting for fields to freeze over to finish the harvest. Keep in mind the delayed harvest comes on the heels of historically tight ending stocks from the previous crop year. The bulk of the harvest may be delayed until the latter half of November.
Drying costs are going to be a major crop input this year. Commercial stocks are rather snug, which is keeping basis levels well supported.
Ontario corn offers out of the Great Lakes are premium to French offers off the Atlantic Coast and U.S. offers out of the Gulf. Merchants are hesitant to put on additional sales until supplies become more readily available. The export offers have incorporated a sharper risk premium than reflected in elevator bids. Farmers are not actively selling corn.
The harvest lows for the corn market are likely in place. Higher prices are expected. Similar to Ontario, farmers in parts of the U.S. corn belt need a freeze or a couple weeks of dry weather to harvest the remaining crop.
Looking at demand, U.S. ethanol margins are estimated to be over $1/bu. Ideas are that the corn used for ethanol will be larger than earlier forecasts. U.S. corn export commitments for the week ending Oct. 21 were 29.8 million tonnes, down three per cent from last year. We expect export sales to increase over the next few months.
The world must come to Ukraine or the U.S. until Argentine new crop supplies are available. The U.S. corn market is contending with lower-than-expected supplies and strong seasonal demand.
There are several major risks that could cause corn prices to surge. China is contending with an energy crisis and has idle ethanol capacity. Recently, the rise in the Dalian corn futures warranted additional imports from the U.S. China is also under political pressure to achieve climate targets and boosting ethanol production will help it achieve that goal.
Argentina is contending with La Niña. This may get worse before it gets better. Keep in mind the Argentina government was quick to implement export controls last December.
As well, the U.S. corn carry-out is sharply below the five-year average. From this perspective, the corn market needs to encourage U.S. acreage next spring through higher prices. Will farmers opt for soybeans with lower input and fertilizer costs?
What to do: We’ve advised Ontario corn producers to be 30 per cent sold on their 2021 production. Stay put for now.
Wheat
The Ontario wheat market has been percolating higher as the domestic and world markets contend with tighter fundamentals. Beginning stocks of winter wheat in Ontario as of Aug. 1 were estimated at 90,000 tonnes on farm and 240,000 tonnes in commercial positions.
Ontario winter wheat production for the 2021-22 crop year was estimated at 2.6 million tonnes. However, only 70 per cent of the crop is milling quality, about 1.8 million tonnes. We’re projecting exports to reach one million tonnes and domestic milling usage to also finish around one million tonnes. Feed usage is estimated at 0.8 million tonnes and wheat used for seed is approximately 70,000 tonnes. Therefore, ending stocks as of Jul. 31, 2022, are expected to be 130,000 tonnes, down from 330,.000 tonnes on Jul. 31, 2021.
This includes 40,000 tonnes on farm and 90,000 tonnes in the commercial system. This will be the lowest of on farm stocks since Jul. 31, 2008, when Ontario supplies were a meager 18,000 tonnes.
On Oct. 27, Egypt tendered for wheat. Russian wheat took the bulk of the tender and was priced at US$327-$328/tonne f.o.b. the Black Sea. Freight from the Black Sea to Egypt was around US$32/tonne for a price of US$361/tonne cnf, which is cost and freight — the delivered price to the Egyptian port.
Ontario wheat is only US$10-US$15/tonne premium to this tender. Egypt is the world’s largest wheat importer. Egyptian tenders set the price structure for winter wheat. In the 2007.08 crop year, we saw Ontario winter wheat trade into Egypt and there is a high probability we will see this trade flow occur again. It’s important that farmers watch these tenders because this will set the price floor for Ontario soft red winter wheat.
Russia has a floating export tax in place. We mentioned in the previous issue that Ukraine and Russia may implement additional export quotas later in February and March. This would drive up the world wheat market.
Food inflation is becoming a major problem for these countries. Last December, we saw Argentina implement constraints on corn and we may see this on wheat as well this year.
The Australian and Argentine harvest will move into high gear during November. This harvest pressure will temper the upside in the short term. The wheat market may be flat from November through January. However, we’re expecting a major rally in the wheat market during February and March.
What to do: We’ve advised Ontario farmers to be 40 per cent sold on milling wheat. Producers should be 50 per cent sold on feed or lower quality wheat. That’s enough sales for now.
We’re expecting a major rally next spring. The market needs to encourage acreage and the market cannot afford a production problem from any major exporter in the Northern Hemisphere. The trend in weather is drier for the Southern Plains and the Volgagrad region.
The wheat market will be extremely sensitive to production issues. Ontario new crop winter wheat prices are a 50 cents/bu. premium to old crop bids. The market needs to encourage acreage and with the delayed soybean harvest, this will be difficult.
