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Soybeans, corn, wheat continue strong runs

Soybean demand remains firm in midst of heavy farmer selling

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Ontario soybean stocks are expected to drop to historical lows at the end of the 2020-21 crop year due to the year-over-year increase in export and domestic demand.

Quick look

Soybeans: South American crop will have an impact on prices after March.
Corn: Earlier-than-usual export holding Ontario corn prices.
Wheat: Russian, Ukraine wheat limits supportive of world prices.

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Elevator prices for soybeans have reached over $17 per bushel as the market functions to attract farmer selling. Canadian corn exports are running sharply above year-ago levels and cattle-on-feed numbers are at seasonal highs.

Corn prices have reached more than $6.30 per bushel in the elevator system, while ethanol processor bids are nearing $6.80 per bushel.

Ontario wheat values have been pulled higher by stronger prices in the United States as U.S. soft red winter wheat stocks drop to historical low levels.

Central and northern Brazil and the main growing regions of Argentina have received timely rains over the past couple weeks and additional precipitation is in the forecast. Southern Brazil remains on the drier side. The Brazilian soybean harvest is in the early stages and will move into full swing in March.

Argentine soybeans are all planted and full season beans will move into the pod-setting stage in February.

U.S. soybean stocks are expected to drop to historical low levels this year.

The Argentine government has lifted its corn export ban announced in December, replacing it with a daily cap. This comes a month after Russia’s announcement of export taxes on corn, wheat and barley.

Ukrainian export controls will limit exports on wheat, corn and barley later in March. Stronger export demand will cause the corn carryout to come in lower than earlier anticipated.

The Canadian dollar continues to trade near two-year highs. March crude oil reached more than $52 per barrel in early January as the energy complex factors in energy policies of the incoming administration of U.S. President-elect Joe Biden. U.S. bonds are incorporating inflation risk premium with ideas the Democrats will pass another large stimulus bill. This is negative for the U.S. dollar.

Recent jobs data shows that Canada has clawed back a higher percentage of jobs than the U.S. The resource-based currency is garnering support from higher prices for metals, grains, oilseeds and energies.

Soybeans

Higher Ontario soybean prices have resulted in heavier farmer selling over the past couple weeks. At the same time, demand remains firm.

Canadian crop year-to-date soybean exports for the week ending Jan. 3 were 2.9 million tonnes, up from three million tonnes last year. Canadian domestic use for the same timeframe was 0.8 million tonnes, up 100,000 tonnes from year-ago levels. Most of the export demand has come from Europe. Large vessel freight actually favours West Coast movement but there appears to be a steady program out of the St. Lawrence, which is favourable for Ontario farmers.

There is no doubt about it, the soybean market has exceeded expectations this crop year.

African swine flu decimated a large portion of the Chinese hog herd in past years, however, we now find total pig inventories up 29.8 per cent from last year and sow inventories are up an estimated 31.2 per cent, according to the Chinese agriculture ministry.

As of Jan. 7, the latest data shows that U.S. soybean shipments to China have reached 26.2 million tonnes, three times higher than last year and there is another 6.2 million tonnes of outstanding sales. Total U.S. soybean sales are up 84 per cent from year-ago levels. China’s crush pace has reached 10-year highs and will continue at the higher pace for the remainder of the year. The U.S. crush pace is also exceeding year-ago levels due to strong meal and soyoil demand.

Private trade estimates reflect that the U.S. soybean carryout will drop to historically low levels at the end of the 2020-21 crop year.

It’s important to note that palm oil continues to trade near contract highs and Malaysian palm oil stocks are expected to be the lowest in 13 years at 1.2 million tonnes.

On the flip side, producers need to take into account that Brazilian soybeans will come on the world market in March. This will likely cap the upside in the soybean market.

The soybean market is functioning to ration demand through higher prices.

Moving forward, we expect the U.S. export sales pace to slow down as Brazilian beans come on the world market later in spring. Secondly, the soybean market is functioning to encourage acreage. However, given the tighter carryout, the market will be very sensitive to North American weather until the soybean production is more certain.

What to do: We’ve advised Ontario farmers to be 80 per cent sold on the 2020 production and 20 per cent sold on new crop. The last 20 per cent of the 2020 crop is considered gambling stocks. We won’t make an official recommendation but producers probably want to sell this final increment during the next month.

Corn

Ontario corn prices have been percolating higher for three main reasons.

  1. Ethanol demand is slowly improving due to higher energy and crude oil values. Widespread vaccinations will likely be available during the second quarter of 2021 in Canada and the U.S. The recovery in the North American economy along with aggressive environment policies of the Biden administration should be supportive for the corn market.
  2. Secondly, cattle-on-feed inventories in Canada and the U.S. are moving through a period of seasonal highs, enhancing domestic North American demand.
  3. Finally, export demand for Ontario and U.S. corn is coming in larger than earlier anticipated. Canadian crop year-to-date exports for the week ending Jan. 3 were 441,000 tonnes, up from only 12,500 tonnes last year. Most of these exports are from Ontario as Western Canada is an importer this year.

U.S. corn exports have received a boost from the Argentine export controls. There are concerns that Argentina may also implement some type of export controls later in spring if prices continue to strengthen.

U.S. corn exports commitments for the week ending Dec. 31 were up 137 per cent from year-ago levels. In a normal year, U.S. corn exports tend to slow in the latter half of the crop year, however, it now looks like the export pace will remain firm into spring, until Brazil’s second crop corn is harvested in May and June. Therefore, the U.S. corn carryout is coming in lower than anticipated.

We mentioned in previous issues that China is experiencing a food shortage. Demand for corn will remain firm for the remainder of the crop year. This additional demand is coming at a time when Russia, Ukraine, and Argentina are imposing export controls. Will Argentina impose additional restrictions once their new crop is available?

There is a serious problem with food inflation, while the country struggles through the COVID pandemic. Will Brazil also implement some sort of export constraints in an effort to control domestic food inflation? If Brazil experiences adverse weather later in spring, there may be consequences.

The European Union is increasing imports due to lower production. The corn market is factoring in a risk premium due to all this uncertainty.

What to do: We’ve advised Ontario farmers to be 60 per cent sold on their 2020 production. We’re planning to make our next sale later in February just before Argentina lifts its export ban. We haven’t recommended sales for new crop. The May-July corn spread continues to trade at an inverse, which is a bullish signal.

Wheat

The wheat market has followed corn and soybeans for the past month. Ontario elevator bids for soft red winter wheat are hovering around $7.70 per bushel at the time of writing this article, up nearly 40 cents per bushel from mid-December.

Export demand has been underpinning the domestic market. Trade estimates have Ontario wheat exports nearing 600,000 tonnes by the end of December. We’re forecasting Ontario wheat exports to reach about 1.2 million tonnes to 1.4 million tonnes for the 2020-21 crop year, which is about 55 per cent of the 2020 winter wheat production. We haven’t seen major exports to the U.S. so far but exports south of the border will likely pick up later in winter, once U.S. supplies become rather tight.

Local millers appear to be well covered for their nearby requirements but we expect the domestic Canadian market may have to trade at a premium to export values later in the crop year.

Similar to corn, the Russian export tariffs and Ukraine export limits are supportive for the wheat complex. The wheat market will be very sensitive to Russian and Ukraine weather as the winter wheat crop comes out of dormancy later in spring.

In Argentina, crop estimates have been taken down due to drier conditions in the latter half of the growing season. After limiting corn exports, the trade is concerned that there may be some controls on wheat.

In Europe, wheat futures continue to trade near contract highs. Europe has the largest feed wheat demand base in the world. Lower corn and barley production have contributed to higher wheat prices in Europe.

Logistics have been challenging through the COVID pandemic as well. More importantly, all major importers have increased purchases in the short term. They’ve been front-end heavy as the world moves from “just in time” to “just in case” inventories.

China has assured its population that wheat supplies are sufficient; however, Canadian spring wheat exports to China from August through November are nearly 900,000 tonnes, three times higher than last year. The COVID pandemic appears to be less of an issue in Asia compared to Europe and North America.

One can tell by the discussion that January and February are very quiet periods for the wheat market.

What to do: We mentioned in the past that the Northern Hemisphere wheat crops are in dormancy. However, the wheat complex tends to incorporate a risk premium when these crops come out of dormancy. We’re 60 per cent sold on wheat and planning to make our next sale in March or early April, depending on weather conditions at this time. Be patient in the short term.

About the author

Markets Analyst

Jerry Klassen

Jerry Klassen is the manager of Canadian operations for Swiss-based grain trading house GAP SA Grains & Products.

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