The markets are in a transition stage. Earlier in March, the focus was on nearby tight fundamentals due to the limited export potential from Russia and Ukraine. The “war premium” in the grain and oilseed markets appears to be eroding. Higher prices caused acute demand rationing.
Quick look
Soybeans: Ontario soybean stocks will reach historical lows by the end of the 2021/2022 crop year.
Corn: It’s anticipated the Ukraine will not export in 2022 and the shortfall will be filled by South America.
Wheat: European and North American growing conditions look favourable for 2022.
Upcoming production is now the focus. Ontario farmers will begin planting over the next month and favourable moisture conditions will ensure optimal crop development in the early stages. The exception is the southern region. which is abnormally dry. This includes Essex, Chatham-Kent, Lambton and Middlesex counties.
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We continue to project a year-over-year increase in Ontario soybean acres at the expense of corn. Both old and new crop prices for wheat and soybeans have decreased since last month. New crop corn prices have strengthened, with a tighter fundamental structure anticipated for the 2022/23 crop year.
Grain and oilseed traders consider March 31 to be the most important day of the year because the United States Department of Agriculture releases two major reports. The Quarterly Grain and Soybean Stocks as of March 1 provides the supply situation for the remainder of the 2021/22 crop year.
Secondly, the Prospective Plantings report provides the first major production forecast. U.S. soybean stocks came in below expectations, largely due to the slower export pace. Soybean acreage intentions were larger than anticipated. U.S. corn acres were sharply lower than traders’ expectations.
The Argentine corn harvest was 14 per cent complete as of April 2. Traders are increasing Brazilian corn production estimates due to timely rains on the Safrinha crop. We haven’t seen an increase in export demand for U.S. corn and wheat despite the export ban from Ukraine and strict export controls from Russia. This is surprising.
The June Canadian dollar traded up to 80.43 US cents on March 30, which was the strongest level since November 2021. It appears that Canadian first quarter GDP will finish at an annualized rate of four per cent while U.S. GDP will struggle to come in around two per cent on an annualized basis.
Members of the International Energy Agency are in making the largest release of oil reserves in history. This comes on the heels of the Biden administration’s announcement to release one million barrels per day for six months of Strategic Petroleum Reserves. This is weighing on corn and soybean markets in the short term but it’s a temporary Band-Aid to a longer-term supply problem.
Soybeans
Ontario soybean stocks will drop to historical low levels at the end of the 2021/22 crop year. The Ontario soybean market has been trading at a premium to world values in an effort to curb export movement. We now find domestic demand is also slowing as domestic crush margins have come under pressure. Ontario soybean basis levels have strengthened and the market is functioning to encourage imports from south of the border. This has capped the upside in local prices for the time being.
The U.S. stocks and acreage reports were considered bearish for the soybean market. U.S. soybean stocks as of March 1 were 1.931 billion bushels or 52.6 million tonnes. This was 369 million bushels or 10 million tonnes above the stocks level on March 1, 2021. As of March 24, U.S. soybean exports were down nine per cent from year-ago levels, which is the main reason for the larger stocks.
U.S. farmers are planning to plant 91 million acres of soybeans this spring. Using a traditional abandonment rate and an average yield of 50.5 bu./acre, U.S. production has potential for 124.1 million tonnes, up from the 2021 output of 120.7 million tonnes.
As of April 2, Brazil’s soybean harvest was 76 per cent complete while Argentine farmers have collected about seven per cent of the soybean crop. There is no change to South American production estimates. Brazil’s soybean production will likely finish at 127 million tonnes, down from 138 million tonnes last year.
Argentine output is projected to come in at 43.5 million tonnes, down three million tonnes from year-ago output. It’s important to note that Brazilian exports are expected to come in above year-ago levels. Brazil and Argentina are the residual carriers of the world soybean production. The 2021/22 carryout stocks for each country will finish at 21 million tonnes. This compares to U.S. ending stocks of eight million tonnes.
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. At the time of writing this article, Brazilian soybeans f.o.b. Paranagua were US$30/tonne discount to U.S. origin out of the Gulf. Brazil will continue to set the price structure on the world market until October. U.S. old crop stocks will be larger than anticipated and Brazil will increase exports this summer. A year-over-year increase in U.S. production will weigh on new crop prices.
Corn
Ontario old crop corn prices are unchanged from March while new crop prices have been slowly climbing higher. European demand for Ontario corn has increased over the past month due to export constraints from Russia and Ukraine. Europe is the largest user of wheat in compound feed rations so the feed complex is highly dependent on the wheat market.
At the time of writing this article, Ontario corn was quoted at US$340/tonne f.o.b. St Lawrence port. French corn was quoted at US$374/tonne f.o.b. La Pallice and U.S. corn was valued at US$355/tonne f.o.b. the Gulf. It appears that domestic elevator bids in Ontario are discount to world values, favouring trade to Ireland, United Kingdom, Spain and Portugal. Ontario ethanol processors appear to have their demand covered. Cattle on feed inventories in Ontario are at seasonal highs and will decline into the summer. Export demand is setting the domestic price structure in Ontario.
U.S. corn stocks as of March 1 were 7.850 billion bushels or 199.4 million tonnes. This was up 154 million bushels or 3.9 million tonnes from March 1, 2021. The stocks number was overshadowed by the acreage estimate. U.S. farmers intend to plant 89.5 million acres of corn this spring, down 3.87 million acres from last year. Using a traditional abandonment rate and average yield of 180 bu./acre, U.S. corn production has potential to finish near 373 million tonnes, down 11 million tonnes from the 2021 crop size of 384 million tonnes. The market cannot afford a crop problem or stocks become historically tight in the U.S.
Traders are expecting Ukraine corn acres to be down 40 to 50 per cent from last year. Traders believe there will be no corn exports from Ukraine for 2022/23. This is the market sentiment at this time.
Argentina’s corn crop is forecasted to reach 53 million tonnes, up 1.5 million tonnes from last year. Brazil’s Safrinha crop is developing under greenhouse conditions. The USDA had the Brazilian crop at 114 million tonnes, up from the year-ago output of 87 million tonnes. Traders now feel the crop could finish in the range of 115 to 118 million tonnes. The Brazilian harvest will move into full swing in June and dominate the world market. The year-over-year increase in Brazilian corn exports will largely offset the shortfall from the Ukraine.
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. There is a strong seasonal tendency for the corn market to rally in April and then trend lower during May through July. We could see a counter seasonal rally if adverse conditions develop in the U.S. this summer.
Wheat
The Chicago and Kansas wheat futures rallied $5.50/bu. during the early days of the Russian invasion of Ukraine. The highs were made on March 8. Since then, the Chicago and Kansas wheat futures have been grinding lower. The Russian Ukraine risk premium appears to be eroding as commercial demand has failed to step forward at the higher levels. Europe and Australia have filled the void left by Ukraine and Russia. There hasn’t been an increase in demand for U.S. hard red winter or soft red winter.
U.S. farmers planted 23.7 million acres of hard red winter wheat last fall. Using a traditional abandonment rate and a five-year average yield, production has potential to finish near 21.8 million tonnes, up from 20.4 million tonnes last year.
The USDA estimated soft red winter wheat acres at 6.9 million, which was down from earlier estimates of 7.1 million. U.S. soft red winter wheat production is estimated at 10.1 million tonnes, up from the year-ago output of 9.8 million tonnes. Seasonal rains tend to occur in April across the Southern Plains and this is critical for crop development. It’s a game of wait and see. The U.S. is the residual carrier of the world wheat crop. If this residual drops to historical low levels, mainly hard red winter, then there is a problem. Otherwise, there is no problem.
European wheat conditions are favourable so far. We’re looking for EU wheat production to finish near 140 million tonnes, unchanged from last year.
North American spring wheat production will recover after last year’s drought. U.S. farmers are expected to produce 12.8 million tonnes this year, up from the 2021 crop of only 8.1 million tonnes. Canadian spring wheat production will likely finish near 26 million tonnes, up from 16 million tonnes last year.
China’s winter wheat crop is the worst on record. We’re looking at a sharp year-over-year decrease in production but this may not result in a surge in demand due to their large reserve stocks.
The U.S. winter wheat harvest will start in June. Europe will move into high gear in July. The Canadian and U.S. spring wheat harvests will be available in September. It’s hard for the wheat market to rally during the summer months.
What to do: We’ve advised producers to be 85 per cent sold on old crop wheat. We’re not making any recommendations this week. The next month is critical for yields on Northern Hemisphere production. We’ll plan to make the final sales recommendation once U.S. yields are more certain. Plan to store your new crop wheat until late October or early November.
