Ontario received above normal precipitation and experienced average temperatures in March. The winter wheat crop is coming out of dormancy under optimal conditions. Above average wheat yields are expected. Export demand for Ontario soft red winter wheat will be down from earlier projections, which has caused prices to dip to 52-week lows.
Current weather forecasts suggest that Ontario corn and soybean crops will be planted later than normal. However, warm and wet conditions will allow row crops to germinate in a favourable environment.
Ontario corn prices have rallied due to seasonally strong domestic and export demand. Soybean export movement has slowed and domestic crush margins have come under pressure over the past couple of weeks. Fertilizer prices continue to trend lower as natural gas values are below pre-COVID levels.
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Quick look
Soybeans: U.S. farmers expected to plant nearly two million more acres than last year, and more than the five-year average.
Corn: Ontario acreage is expected to remain about the same as last year, U.S. projected acreage to increase by four per cent.
Wheat: An increase in U.S. soft red output will limit Ontario exports to the U.S. in the 2023-24 campaign.
The USDA released its Prospective Plantings Survey on March 31. U.S. farmers intend to increase corn acres by four per cent. Soybean acres were relatively unchanged from year-ago levels. U.S. winter wheat acres were up 13 per cent from last year and up two per cent from the January estimate.
In the short term, traders are concerned about U.S. planting progress. Later planting dates for corn and soybeans are associated with lower yields. As of March 29, Brazilian farmers had harvested 70 per cent of the soybean crop. The first corn harvest has been completed and planting of the second major corn crop has wrapped up. Conditions are optimal so far.
Traders continue to lower Argentine soybean and corn production estimates. Argentine farmers had harvested six per cent of the corn crop as of March 31. Kansas continues to experience drought-like conditions. Canadian and U.S. spring wheat will be planted later than normal. European conditions have been favourable for wheat development, while Russia is expected to experience a year-over-year decline in wheat output.
Canadian first quarter GDP is expected to finish in the range of two to 2.5 per cent (quarter-over-quarter, annual rate), up from earlier forecasts for growth of 0.5 per cent. Canadian employers added 171,000 jobs during January and February and core inflation remains elevated. The Bank of Canada was the first central bank to pause interest rate hikes but this pause may be ending.
Bond yields are now turning higher and the money supply is tightening on both side of the border. The Canadian dollar is expected to appreciate against the U.S. greenback during the spring period, which would weigh on Ontario grain and oilseed markets. Strength in crude oil is also contributing to the stronger resource-based currency as OPEC plans additional production cuts from May forward.
Soybeans
Ontario soybean prices have softened since mid-March for two main reasons. Ontario export offers are sharply higher than Brazilian origin, which has slowed offshore movement. Meal and vegetable oil prices have decreased, which has caused crush margins to deteriorate.
It appears the U.S. and Ontario soybean crops will be planted later than normal, which will cause the soybean futures to incorporate a risk premium. U.S. soybeans will likely trade into Ontario later in spring as domestic on-farm stocks drop to bin-bottom levels. We expect a minor rally during planting before the soybean market develops a longer-term downtrend into summer and fall.
As of April 4, Brazilian soybeans were quoted at US$525/tonne f.o.b. Paranagua, while U.S. soybeans were valued atS$594/tonne f.o.b. the Gulf. There is significant downside potential for North American soybeans once farmers have wrapped up planting.
U.S. farmers are expected to plant 87.5 million acres of soybeans this year, according to the USDA’s Prospective Plantings Report. Using a traditional abandonment rate and an average yield of 50.3 bu./acre, U.S. production has potential to finish near 118 million tonnes, up from 2022 output of 116.4 million tonnes and up from the five-year average of 115 million tonnes.
The Statistics Canada planting survey will be out on April 24. Ontario acreage will likely be the same as last year.
South American crop estimates are unchanged from the last issue. Brazilian crop forecasts range from 153 to 156 million tonnes, up 23 to 26 million tonnes from last year. Argentine output will drop to 33 million tonnes, down 10 million tonnes from last year.
What to do: We have advised farmers to be 100 per cent sold on their 2022 crop and 15 per cent sold on expected 2023 production. Use the spring rally to catch up on sales because we expect prices to trend lower after planting.
Corn
Ontario corn prices have rallied since mid-March but additional upside may be limited. Domestic demand is in the process of making seasonal highs. This stronger seasonal demand in the domestic market has made Ontario corn uncompetitive into Northern European destinations.
The managed money was an active seller of corn futures earlier in March but this behaviour has now reversed. Seasonally, the speculative funds are major buyers of corn during April. This speculative buying on the futures has contributed to stronger cash prices in Ontario in the short term.
As of April 4, Brazilian corn was offered at US$295/tonne f.o.b. Paranagua, while U.S. corn was trading at $301/tonne f.o.b. the Gulf. Ontario corn was quoted at US$280/tonne f.o.b. St. Lawrence port. French corn was offered at $265/tonne f.o.b. La Pallice.
Chinese buying of U.S. corn has strengthened the North American corn market and has been another factor making Ontario corn uncompetitive into Northern Europe.
U.S. farmers are expected to plant 92 million acres of corn this spring, up 3.42 million acres from last year. Using a traditional abandonment rate and an average yield of 180 bu./acre, the U.S. crop has potential to reach 385 million tonnes. This is up from last year’s crop size of 348 million tonnes and up from the five-year average of 364 million tonnes.
Ontario corn acreage will likely be similar to year-ago levels when Statistics Canada releases its acreage survey on April 24. European corn production is expected to reach 65 million tonnes, up 13 million tonnes from last year. This will limit Ontario corn exports to Europe in the 2023-24 crop year.
This larger U.S. production will come on the heels of a record Brazilian crop of 125 million tonnes. The main Safrinha harvest will occur in June. Brazil will dominate the world market for corn from June through September.
Barring adverse weather, the U.S. corn market will function to encourage demand and make seasonal lows during late August or early September. During October, the U.S. will take over as the main player for corn exports. At the time of writing this article, the December corn futures were trading at $5.67/bu. During harvest, December corn futures could be as low as $4.50/bu.
What to do: We’re advising Ontario farmers to sell their final 20 per cent increment, bringing total sales for the 2022 crop to 100 per cent. In the previous issue, we’ve advised producers to be 20 per cent sold for new-crop. Managed money buying and strong domestic demand has lifted Ontario corn prices above world values in the short term. Farmer selling tends to increase after harvest.
Once the Brazilian harvest starts, the world will be awash with corn. The lower Argentine output is a minor event and isn’t significant enough to influence world values when all other major exporters are increasing production. The managed money will get back on the short side of the corn market in May.
Wheat
The wheat market experienced counter-seasonal trends during the 2022-23 crop year. The crop year highs were made in early October, about one month ahead of normal. The market has been in a downtrend since then.
While the U.S. and Europe were contending with historically tight fundamentals, Russia had a record crop of more than 100 million tonnes, up 25 million tonnes from the previous year.
The Black Sea Grain Initiative was extended in November 2022 and again in March, allowing Russian wheat to saturate world demand. The war premium in the wheat complex continues to erode throughout the crop year. Keep in mind Australian farmers also harvested their third bumper crop in a row. The year-over-year increase in Russia, along with Australian production, more than covered the shortfall from other major exporters.
Northern Hemisphere wheat crops are out of dormancy. Conditions are favourable in France and Germany. Total European soft wheat production is expected to reach 132 million tonnes, up from 126 million tonnes last year. In the U.S., there will be yield drag on the hard red winter wheat due to drier conditions but production will still finish above year-ago levels.
U.S. hard red winter wheat crop estimates range from 20-23 million tonnes, up from the 2022 output of 14.4 million tonnes. U.S. soft red winter wheat is expected to reach 12.3 million tonnes, up from 10.2 million tonnes last year. This increase in U.S. soft red output will limit Ontario exports to the U.S. in the 2023-24 campaign.
U.S. hard red spring wheat acreage is expected to be down two per cent from last year. Canadian spring wheat area is projected to be up three to four per cent compared to 2022. Canadian and North Dakota farmers will plant into optimal moisture conditions.
What to do: We’re advising producers to sell their final 20 per cent increment, bringing total sales for the 2022-23 crop year to 100 per cent. The forecast calls for precipitation in the U.S. Southern Plains in the last half of April and first half of May.
The U.S. harvest will begin in June followed by the European and Russian harvests in July. The North American spring wheat harvests occur in August and September. There will be ongoing harvest pressure until September.
