Ontario elevator bids for corn and soybeans made fresh 52-week highs during mid-April for both old and new crop positions. Ontario farm stocks of corn and soybean will drop to bin-bottom levels at the end of the 2021/22 crop year. The domestic market is functioning to ration demand by trading at a premium to world values.
For new crop positions, the Ontario corn, soybean and wheat markets are incorporating a risk premium due to uncertainty in production. Given the year-over-year increase in export demand, the fundamentals for grains and oilseeds in Ontario will be historically tight for 2022/23. Statistics Canada will release its first acreage estimate on April 26.
Quick Look
Soybeans: Expect significant volatility in the market due to South American harvest pressure, and if adverse weather appears in the U.S.
Corn: We project a surge in Ontario corn exports late in the crop year, which will underpin domestic prices.
Wheat: Weather in the next month will be critical for wheat production around the globe.
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World grain and oilseed markets are balancing South American harvest pressure and the Northern Hemisphere production forecasts. As of April 12, Brazilian farmers had harvested 85 per cent of the soybean crop while Argentine farmers had brought in nine per cent of the soybean production. The Argentine corn harvest was approximately 22 per cent complete.
Brazil’s major second corn crop, known as the Safrinha production, is in the late vegetative phase or early reproductive phase. Some regions are on the drier side and timely rains are needed or the crop will experience yield drag. China has recently purchased 83 million bushels or 2.1 million tonnes of U.S. corn. U.S. soybean sales to China have slowed as the communist state releases reserve soybean stocks.
The U.S. Southern Plains continue to experience drier conditions, lowering yield projections for hard red winter wheat. Earlier, it was believed Russia would ban exports of wheat and barley. This is not the case. The Russian export ban through June 30 is only to states included in the Eurasian Economic Union, not to other countries. According to SovEcon, there have been steady exports out of Russian ports after an initial slowdown at the start of the Ukraine invasion.
Outside influences are supportive for the grain and oilseed markets. Crude oil continues to trade in the range of $100-$110/barrel. The U.S. Environmental Protection Agency granted an emergency waiver on the ban of E15 blend ethanol gas for the months of June to mid-September. This could add an additional 25 million bushels to U.S. corn demand. Inflation continues to percolate higher, which is usually supportive for commodity markets in general. The U.S. is going to have a late spring. Later seeded crops are usually associated with lower yields.
Soybeans
At the time of writing this article, Canadian soybean export offers out of the St. Lawrence River were in line with offers out of the U.S. Gulf. However, Brazilian offers f.o.b. Paranagua were US$5-$10/tonne discount to Canadian and U.S. export offers. Ontario crusher soybean bids are premium to the world market, thereby curbing exports.
The Canadian soybean domestic disappearance for the week ending April 10 was 1.233 million tonnes, up from year-ago usage of 1.063 million tonnes. We are projecting that the domestic crush pace will further exceed last year’s pace for the remainder of the year given the profitable crush margins. On-farm stocks in Ontario at the end of the crop year are projected to drop to a historical low of 5,000 tonnes. New crop prices are discount to the old crop elevator bids; so don’t hold stocks into the new crop year.
We’re expecting a 7.2 per cent year-over-year increase in Ontario soybean acres. Using a traditional abandonment rate and an average yield of 50.5 bu./acre, Ontario soybean production has potential to reach 4.4 million tonnes, up from the 2021 output of 4.1 million tonnes.
The USDA lowered its Chinese import projection for the 2021/22 crop year from 94 million tonnes to 91 million tonnes. During the 2020/21 crop year, China imported nearly 100 million tonnes of soybeans. Chinese demand has slowed with the recent COVID-19 outbreak. The release of reserve stocks has also contributed to the softer nearby demand with prices near historical highs. China’s food prices actually fell by 1.5 per cent during March compared to a year earlier.
Favourable crush margins in the U.S. have enhanced the U.S. domestic crush pace. Cash crush margins are estimated to be over $2.50/bu. The U.S. domestic market is also rationing demand away from export channels by trading at a premium over Brazilian offers. Demand has shifted for biofuels given the increase in energy prices. The world cannot afford a crop problem in the U.S. given the year-over-year decline in South America production.
What to do: We’ve advised Ontario farmers to be 90 per cent sold on old crop and 10 to 15 per cent sold on new crop. In our previous issue, we mentioned Brazilian soybeans were US$30/tonne discount to U.S. origin. This discount is now only US$5-$10/tonne. Once Brazilian harvest pressure is over, there could be further upside if adverse weather materializes in the U.S. The market is in a precarious situation; one can expect significant volatility.
Corn
Over the past couple weeks, Ontario corn prices have rallied over 60 cents/bu. for both old and new crop positions. Export demand has been driving domestic prices higher. In the previous issue, we mentioned that export offers for Ontario corn were discount to U.S. and French origin. At the time of writing this article, French corn was offered at US$383/tonne f.o.b. La Pallice. Brazilian corn was US$350/tonne f.o.b. Parangua and Ontario corn was quoted at US$345/tonne f.o.b. St. Lawrence.
Ontario corn is competitively priced into European destinations. More importantly, there are no concerns over fobbing capacity in Canadian ports as there are in the U.S. Gulf and in Brazil. Without going into detail, smaller vessels are more convenient for minor European destinations. It can be costly to load a small vessel at a Gulf terminal, putting U.S. origin corn out of reach.
For the week ending April 10, Canadian corn exports were more than 100,000 tonnes, bringing the crop year-to-date exports to 841,600 tonnes, up from 659,900 tonnes last year. We’re projecting a surge in Ontario corn exports late in the crop year, which will underpin domestic prices. Export demand for Ontario corn will only slow down once the European winter wheat harvest moves into high gear in July.
For new crop positions, the ethanol market will be the main factor supporting the domestic market. Once ethanol processors have secured their requirements, the domestic feed and export markets will be at equilibrium. It’s always important to be aware of the main factor leading or influencing the domestic price structure.
We’re expecting Ontario farmers to seed 2.150 million acres of corn, unchanged from last year. Using a five-year average yield of 166 bu./acre, production has potential to finish near nine million tonnes, down from the 2021 crop size of 9.5 million tonnes. Remember, last year farmers had record yields but it’s too early to expect favourable conditions.
At the time of writing this article, private Brazilian forecasters had total corn production at 119 million tonnes, up from the year-ago crop of 87 million tonnes. Argentine output was expected to finish at 53 million tonnes, up 1.5 million tonnes from last year. U.S. production will likely finish near 373 million tonnes, down 11 million tonnes from the 2021 campaign. U.S. prices will move to premium to Brazilian origin in June, once the Brazilian harvest is in full swing.
What to do: We’ve advised farmers to be 85 per cent sold on their 2021 production and 10 per cent sold on expected new crop. That’s enough for now. We always keep some old crop stocks until the upcoming crop is more certain. There are too many uncertainties in the world to add onto new crop sales.
Wheat
Ontario winter wheat experienced limited winterkill and crop conditions are better than expected. Out of 930,000 planted acres of winter wheat last fall, we’re projecting a harvested area of 890,000 acres. Using an average yield of 86 bu./acre, we’re projecting an Ontario winter wheat crop of 2.1 million tonnes, down from the 2021 output of 2.7 million tonnes.
Egypt booked 350,000 tonnes of wheat during the second week of April. The cost of the wheat including freight was US$490/tonne, up nearly 45 per cent from two months ago. There was one Russian cargo included in this tender. Egypt is the world’s largest wheat importer while Russia has been typically the largest exporter. These tenders usually set the price floor for the world wheat market. Ontario wheat prices continue to trade at a slight premium to other major exporters involved in these tenders.
Russian exports have continued to Egypt, Iran and Turkey after an initial slowdown during the onset of Russian invasion. Under the Russian quota system, wheat exports are projected to be only eight million tonnes from February through June. Russian exports will slow in May as they near the quota maximum.
The U.S. hard red winter wheat was rated 32 per cent good to excellent as of April 10, down from 53 per cent last year. There has been yield drag due to drier conditions in the U.S. Southern Plains although only five per cent of the crop is headed. There are no significant rains in the 10- to 14-day forecast. The next 30 days are critical for the U.S winter wheat crop.
We want to remind readers that the U.S. farmer sells nearly 50 per cent of the winter wheat crop in the summer months. North Dakota has largely recovered from the drought conditions of 2021 so average yields are expected on spring wheat.
In Europe, the bulk growing region of France, Italy and Southern Germany received less than 50 per cent of normal precipitation. Precipitation over the next 30 days will either make or break the crop. The main European harvest occurs in July, one month after Kansas.
Western Canada is always seven to 10 days away from major drought. This year is no different. It’s going to be a late spring due to cooler temperatures. The Red River Valley of Manitoba is too wet. Outside this region most of Western Canada has experienced average to below average precipitation. Timely rains will be needed.
What to do: We’ve advised producers to be 85 per cent sold on old crop wheat. We’re planning on making our final recommendation in early May. For new crop, be patient. We always say that farmers need sufficient storage for all their wheat. Russian and U.S. farmers will be aggressive sellers in July and August.
