Ontario soybean prices have been percolating higher over the past two weeks. Farmer selling has eased. At the same time, domestic and export demand has improved, resulting in the firmer tone.
Ontario corn prices have been relatively flat as the commercial system absorbs aggressive farmer selling. Ontario wheat prices remain under pressure. Domestic flour millers have their nearby demand covered. World wheat prices have been grinding lower as the United Nations negotiated a 120-day extension to the Black Sea Grain Deal.
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Quick Look
Soybeans: At this time of year, the risk to the Ontario market is a slowdown in U.S. exports and U.S. soybeans creeping into Ontario.
Corn: Trading is focused on South American production.
Wheat: Harvest pressure on the world market that usually occurs in August will now occur in December.
The U.S. corn market is functioning to ration demand as the domestic market trades at a premium to world values. U.S. corn export sales are down 48 per cent from year-ago levels, while corn basis levels in the Midwest remain elevated. U.S. soybean prices are expected to trend lower in the new calendar year.
Brazilian soybeans are trading at a sharp discount to U.S. origin on the world market. Brazilian farmers had planted 83 per cent of the soybean crop as of Nov. 25. Planting of the first corn crop was in the final stages. Argentine farmers had planted nearly 15 per cent of the soybean crop and 28 per cent of the corn crop as of Nov. 23.
The forecast for Argentina and Brazil calls for below normal precipitation over the next 30-45 days. Ongoing Chinese COVID-19 lockdowns continue to limit demand for soybeans and soy products. The United Nations negotiated an extension to the Black Sea Grain Initiative.
The Canadian dollar appears to be ratcheting higher after making seasonal lows October. The financial markets are factoring in lower inflation during the next four- to six-month period. We believe this is premature. Inflation is expected to hover between five and seven per cent throughout 2023, which will ensure interest rate hikes from the U.S. Federal Reserve and the Bank of Canada.
U.S. refiners are switching from gas to diesel, so gas prices are expected to make fresh historical highs in the U.S. and Canada in March. North American crude oil stocks and diesel are at historical lows.
Soybeans
Ontario soybean prices strengthened by 50 cents/bu. through November. The crop year-to-date domestic crush pace continues to exceed year-ago levels as margins remain favourable. Ontario soybeans are competitive on the world market, which will set the price floor for domestic elevator bids.
Ontario farmers sell three million tonnes of soybeans between Aug. 1 and Dec. 31. The Ontario domestic crush is estimated 700,000 tonnes while Ontario soybean exports are projected to finish 1.63 million tonnes. Total demand is estimated at 2.330 million tonnes. Supplies exceed demand by 670,000 tonnes during this timeframe.
In the first half of the crop year, the Ontario market functions to encourage demand as values are competitive on the world market. In the latter half of the crop year, the Ontario soybean market functions to ration demand. Domestic values need to trade above world prices to curb offshore movement.
U.S. soybeans are competitive on the world market for December and January. This changes in February. For December shipment, U.S. soybeans were quoted at US$597/tonne f.o.b. the Gulf, while Brazilian origin were valued at US$610/tonne f.o.b. Paranagua. Ontario soybeans were valued at US$580/tonne f.o.b. St Lawrence port.
For February, U.S. soybeans are quoted at US$605/tonne f.o.b. the Gulf and Brazilian soybeans are offered at US$575/tonne f.o.b. Paranagua. Ontario soybeans are quoted at US$585/tonne f.o.b. St. Lawrence port for February. We expect export offers to increase over the next three months so that Ontario prices are premium to Brazil.
Chinese soybean demand will decline through winter and early spring. The zero-COVID-19 policy has been devastating to the economy. This comes on the heels of the Chinese real-estate meltdown that could be more severe than anticipated. It is hard to forecast soybean import demand for the latter half of the 2022-23 crop year but it could be down sharply from year-ago levels. Brazilian soybeans will eliminate exports of Ontario beans into Europe, North Africa and Middle East markets from March forward.
What to do: This week, we are advising farmers to increase sales by 10 per cent, bringing total sales for the 2022 production to 60 per cent. The risk to the Ontario market is that U.S. exports slowdown and soybeans from south of the border creep into Ontario. This will occur when Ontario export demand slows down due to stronger competition from Brazil. We still have 40 per cent if adverse weather develops in South America.
Corn
Ontario elevator bids for corn have been relatively flat over the past month and we don’t see much change until spring. To reiterate from our previous issue, Ontario farmers are expected to deliver 6.5 million tonnes into the commercial system from Sept. 1 through Dec. 31. Domestic and export demand is forecasted to be 3.8 million tonnes. Supplies exceed demand by 2.7 million tonnes. This excess surplus in the commercial system will only be eliminated by the end of March.
The export pace has increased over the past month and will continue to exceed year-ago levels through winter. Ethanol margins have improved as well and domestic feed demand is at seasonal highs. We are expecting corn market to rally in the March/April timeframe after demand has absorbed excess supplies in the commercial system.
U.S corn offers out of the Gulf are decreasing while Brazilian values are increasing. At the end of November, U.S. corn was quoted at US$326/tonne f.o.b. the Gulf, down US$12/tonne from mid- November. Brazilian corn was valued at US$300/tonne f.o.b. Paranagua, up US$5/tonne from 14 days earlier. Ontario corn was quoted at US$280/tonne f.o.b. St. Lawrence port. French corn was offered at US$320/tonne f.o.b. La Pallice, down US$30/tonne from two weeks earlier. Ontario corn remains competitive into Northern European destinations. Ukraine corn is quoted at US$260/tonne f.o.b. Black Sea, down US$5/tonne from our previous issue.
Talk in the trade is that Brazil has loaded four to six cargoes of corn with the destination of Chinese ports. This past May, Chinese and Brazilian officials negotiated phytosanitary conditions for Brazilian corn to trade to China. This removes a key U.S. market.
Traders are focused on South American conditions. According to the Buenos Aires Exchange, the Argentine corn crop was rated eight per cent good to excellent at the end of November, down from the year-ago rating of 53 per cent. Brazil’s first crop corn has experienced favourable conditions. The key development stage is in December when the crop moves through pollination.
Brazil’s main corn crop is planted in February. The corn market tends to incorporate a risk premium in December due to the uncertainty in South American production. The second major rally occurs during April. U.S. basis levels have strengthened while the futures have been grinding lower. Domestic feed and ethanol usage has been sufficient to sustain the cash market.
What to do: This week, we are advising Ontario farmers to sell 20 per cent of their 2022 production, bringing total sales to 40 per cent. The futures market is telling producers to sell now for February or March delivery. U.S. and Ontario domestic feed demand is at seasonal highs. If weather conditions improve in Argentina, the world market will start to trend lower.
Wheat
Ontario wheat prices continue to trend lower. Domestic flour millers in Canada and the U.S. have stepped forward for requirements in the deferred positions, so end users are never scrambling to secure supplies in the spot market. Export values have declined with the extension of the Black Sea Grain Initiative. This has weighed on the domestic wheat bids.
We mentioned in the past that Ontario farmers are expected to sell 1.7 million tonnes of wheat in the first five months of the crop year. Total demand between domestic and export movement is projected to reach 1.2 million tonnes. Supplies exceed demand by 500,000 tonnes.
Export values are down US$10-US$15/tonne from mid November. As of Nov. 25, a nominal value for Ukraine and Russian wheat 11.5 per cent protein was US$285/tonne. French wheat was quoted at US$343/tonne f.o.b. Rouen while U.S. soft red winter was valued at US$350/tonne f.o.b. the Gulf. Ontario soft red winter was valued at US$295/tonne f.o.b. St. Lawrence port.
December and January are extremely slow periods for fresh wheat business. This is when wheat merchants take winter holidays.
The United Nations negotiated a 120-day extension to the Black Sea Initiative. This agreement will expire on or around March 20. Russian farmers harvested a record wheat crop and exports are lagging year-ago levels by 50 per cent. The harvest pressure on the world market that usually occurs in August will occur in December.
The United Nations ensured Russia that Western sanctions that hinder wheat exports would be lifted. Russian wheat will trade into traditional destinations in Africa. We also expect Russian wheat to saturate Central and South American markets, which is a traditional backyard for Canadian and U.S. wheat.
This is the third consecutive year that Australian farmers will harvest a bumper crop of wheat. Although there are quality concerns on the East Coast, the exportable surplus will saturate Southeast Asian demand.
What to do: We have advised Ontario farmers to be 30 per cent sold on their 2022 wheat production. We’re planning on the next sale in March when the burdensome supply in the Ontario elevator system will be alleviated. The world market will have absorbed excess supplies from Russia, Ukraine and Australia.
