Statistics Canada’s November crop survey released on Dec. 6 was considered neutral to bullish for Ontario corn, soybean and wheat markets. Production for all three crops came in below year-ago levels and below prior estimates.
Soybeans: Ontario soybean production declined by five million tonnes in 2019.
Corn: Total Ontario corn production was only down slightly due to increased acreage.
Compared to last month, Ontario elevator bids for wheat and corn are up 15 to 20 cents per bushel while soybean prices are up 50 to 75 cents per bushel. Brazilian weather conditions have been favourable for crop development. Over the past couple weeks, northeastern Brazil and the southern state of Rio Grande do Sul have experienced drier conditions which warrants monitoring.
The southern half of Argentina has experienced drier conditions which has caused analysts to temper production estimates. The USDA on Jan. 10 was to release its final 2019 crop estimates and U.S. winter wheat acreage for 2020. There appeared to be a bullish bias heading into the report because of the strong basis levels in the Midwest during the fall and winter period.
According to the South China Morning Post, Vice Premier Lui is expected to lead a Chinese delegation to Washington for the signing of Phase One of the U.S. China trade agreement. The signing is expected to take place Jan. 15. Traders view the easing of trade relations as positive for corn and soybean prices.
The Canadian dollar reached a 14-month high on Dec. 31 as currency traders bolstered their bullish positions on the Canadian dollar. There appears to be a “risk-on” sentiment in the financial markets with the easing trade relations and neutral monetary policy from the Bank of Canada. Crude oil traded near 52-week highs late in the year adding a positive tone to the resource-based currency.
Statistics Canada’s final crop survey for 2019 had Ontario soybean production at 3.7 million tonnes, down from the 2018 output of 4.2 million tonnes. Total Canadian soybean production came in at six million tonnes, down from the year-ago crop size of 7.4 million tonnes. Despite the year-over-year decrease in production, the market has been functioning to encourage demand. The crop year-to-date domestic crush to Nov. 30 was 0.572 million tonnes, down from 0.696 million tonnes last year; crop year-to-date exports to Nov. 30 were 1.4 million tonnes, down from 2.4 million tonnes last year.
World soybean prices tend to experience seasonal strength during January and February prior to the main South American harvest. North American soybeans are currently competitively priced against South American origin. The Brazilian soybean crop will move into the flowering and pod setting stage during the last half of January. At the end of December, the Argentinian soybean crop was approximately 80 per cent planted.
The USDA final production estimate for 2019 is expected to be in the range of 93 to 96 million tonnes, down from the December estimate of 96.6 million tonnes and down from the 2018 crop size of 120.5 million tonnes. For the week ending Dec. 19, U.S. soybean export sales commitments were 29.1 million tonnes, down three per cent from last year. The USDA is forecasting minor year-over-year increases in the U.S. domestic crush and exports. We’re expecting the USDA to lower the 2019-20 carryout on subsequent USDA WASDE reports.
What to do: The soybean market appears to be incorporating a risk premium due to the uncertainty in South American production. The drier conditions in Argentina coming on the heels of a bullish U.S. fundamental structure are easing tensions. Ontario soybean prices were hovering around $11.75/bushel for old crop and $12/bushel for new crop. We want to be selling into this strength. We’re advising producers to sell an additional 20 per cent of their 2019 production bringing total sales to 70 per cent. For new crop, we believe it’s prudent to sell 10 per cent of their 2020 expected production.
Statistics Canada estimated the average Ontario corn yield at 158.4 bushels per acre, down from the 2018 average yield of 166 bushels per acre. This resulted in Ontario production of 8.6 million tonnes, down from the 2018 output of 8.8 million tonnes. The increase in harvested area partially offset the lower yield. The Ontario corn market continues to ration demand by trading at a premium to world values. Canadian crop year-to-date corn exports for the week ending Dec. 20 were 12,500 tonnes, down from 548,000 tonnes last year.
The fundamentals for corn are considered neutral. Argentinean farmers have seeded 75 per cent of the corn crop. In the Central region of Argentina, the crop is moving into the pollination stage while drier conditions are tempering early crop growth in the south. In Brazil, first crop corn will move into the grain filling stage during January and this is the peak of the rainy season. There are no concerns with the Brazilian crop at this time.
The final USDA production estimate is expected to show a decrease in yields, similar to the trend reported by Statistics Canada in Ontario. Given the strong basis levels in the Northern Midwest and Northern plains, we believe the actual crop size may shock the trade. U.S. corn is competitively priced on the world market but export sales continue to lag year-ago levels. Total U.S. export sales commitments are down 43 per cent from last year.
Drier conditions in Argentina along with the potential for a USDA surprise on the final crop estimate have caused the corn futures to experience a minor rally over the past month. While U.S. exports are lagging year-ago levels, offshore demand is expected to improve later in winter.
What to do: We’ve advised producers to be 50 per cent sold on their 2019 production. Given the current environment, we feel producers can be patient to make additional sales.
Statistics Canada estimated Ontario winter wheat production at 1.4 million tonnes, down from last year’s crop size of 2.1 million tonnes. In previous issues, we’ve mentioned that Ontario and U.S. soft red winter wheat stocks will drop to historically low levels at the end of the 2019-20 crop year. The Ontario market is functioning to ration demand by trading at a premium to world values and encourage the usage of alternate wheats in milling channels. Over the past month, we’ve seen world fundamentals tighten resulting in higher domestic and world prices.
The Argentine and Australian crop estimates have been lowered due to drier conditions late in the growing season. In Russia, a large percentage of the winter wheat belt experienced less than 50 per cent of normal precipitation from September through November. The crop went into dormancy under less than ideal conditions. November was particularly dry for Russia with less than 25 per cent of normal rainfall in the southern district. The trade is anticipating a year-over-year decline in U.S. winter wheat acreage on the January crop report. We mentioned in the previous report only 80 per cent of the French winter wheat crop was seeded due to extensive rainfall during October and first half November. U.S. exports are up eight per cent from year-ago levels and the USDA may have to increase their export projection if this pace continues. U.S. hard red winter wheat fundamentals are tightening.
What to do: In the past two years, the wheat market has trended lower from January through April. We expected the wheat market to experience a similar price pattern given the burdensome world ending stocks for 2019-20; however, the Southern Hemisphere production is lower than expected and the 2020 wheat crop has some major concerns. We’ve advised producers to be 70 per cent sold on their 2019 production and will be patient to make additional recommendations.