Adverse rains have hindered harvest progress across Ontario. Farmers have harvested approximately 75 per cent of the soybeans and 25 per cent of the corn. Yield reports are slightly higher than expected and total production will likely finish above the recent Statistics Canada estimates.
Vomitoxin appears to be quite prevalent on the early corn samples and this could be a major problem this year. Ontario exports of corn and soybeans are running ahead of year-ago levels, which is keeping basis levels firm. Harvest is moving into the final stages south of the border. At the same time, seeding progress in South America continues under favourable conditions. The wheat market is focussed on Australian and Argentine harvest progress.
Farmers are keeping a close eye on American events. The outcome of the U.S. election will have limited effect on the grain and oilseed markets in short term. We expect the next USDA WASDE report to be negative for soybeans, slightly positive for corn and supportive for wheat. Finally, President Trump and Chinese Premier Xi Jinping are expected to discuss trade and tariffs prior to the G20 meeting at the end of November.
Soybeans: Crop conditions for planting are favourable in Brazil and Argentina.
Corn: Corn supplies are likely to tighten in spring and that could lead to higher prices.
Wheat: The wheat market is showing little downside with global trade and environmental conditions as they are.
The U.S. soybean harvest was 83 per cent complete as of Nov. 4, which compares to the five-year average of 89 per cent complete. We’re expecting the USDA report to be negative for the soybean market. Yields could be adjusted plus or -0.5/bushel compared to the October report. More importantly, the USDA is expected to lower their export projection, which will result in a larger carryout.
As of Oct. 31, Brazilian soybean planting was about 46 per cent complete compared to 30 per cent last year and the five-year average progress of 28 per cent. This suggests that the Brazilian soybean harvest could start about 10 to 15 days earlier than normal. Argentine soybean planting is moving into high gear this month. Crop conditions to date are quite favorable in both Argentina and Brazil. South American export basis levels have been under pressure over the past couple weeks. Chinese buying has slowed in the short term resulting in the softer tone. The USDA was expecting China’s soybean imports to reach 94 million tonnes on the October WASDE report; however, private trade estimates now have China’s demand in the range of 83 to 86 million tonnes. Apparently meal usage is coming in below expectations because feed processors are allowed to lower the protein content.
What to do: We’re advising Ontario farmers to sell an additional 20 per cent of their 2018 production bringing total sales to 80 per cent. Exports of Ontario soybeans will slow down once the Brazilian harvest gets underway in February. Secondly, Chinese demand is lower than expected. Thirdly, the USDA report is expected to be negative for the soybean market due to the lower export projection.
Finally, outcome of discussions between President Trump and Premier Xi Jinping are uncertain but there is political pressure on both sides to make some headway. Ontario soybean prices have held up because of the Chinese tariffs on U.S. soybeans. If these tariffs are removed, Ontario soybean prices will collapse. Remember, our plan is to do the exact opposite of the U.S. farmer, who is storing soybeans in hopes of higher prices in the latter half of the crop year. At this stage, both Brazil in Argentina will experience a year-over-year increase in production so don’t hold your breath for higher prices.
The U.S. corn harvest was 76 per cent complete as of Sunday, Nov. 4 which compares to 68 per cent last year and the five-year average of 77 per cent complete. The seven to 10-day weather forecast calls for limited precipitation which should allow farmers to finish up. We’re expecting the USDA WASDE report to be slightly friendly for the corn market. Private trade estimates are expecting a downward revision to the average yield; exports will be remain the same or be increased slightly. The combination of these two will result in a downward revision to the 2018-19 U.S. corn carry-out.
Brazilian farmers have seeded approximately 75 per cent of their first crop corn; we estimate that Argentinean producers have seeded about 55 per cent of the corn crop. At this time, there are no concerns in regards to South American production given the current conditions and forecast. Temperatures usually make their seasonal highs in December and the early seeded corn moves into the pollination phase. In January and February, the market will be sensitive to weather conditions. This is when we expect the market to incorporate a risk premium due to the uncertainty in production.
U.S. corn exports are running sharply ahead of year-ago levels. Recently, export sales have been somewhat lower due to strong competition from Ukraine and Argentina. Later in winter, we expect the U.S. corn out of the Gulf to once again be most competitive on the world market. Domestically, cattle on feed inventories move through a seasonal high in January through March period. Seasonally strong demand in January and February along with production uncertainty in South America should result in higher prices during the late winter period.
What to do: Ontario corn prices are relatively unchanged from two weeks ago. Earlier in spring, we advised producers to sell approximately 10 per cent to 15 per cent of their 2018 production for fall delivery. We’re waiting for the Northern Hemisphere corn harvest to wrap up before making additional sales. We want to draw attention to the future markets’ spreads. The December March futures spread is trading at a 12 cent carry; the March May futures spread is trading at an eight cent carry; the May July is trading at a six cent carry. The spreads reflect the commercial view of the market, which is also known as the smart money.
It appears that corn stocks will tighten in the late spring timeframe which should result in higher prices. Unlike soybeans, any progress on trade talks with China will have a positive effect on the corn market. China is rather quiet on its ethanol policy because of the trade war with the U.S. If China’s pre-tariff plans to increase ethanol production come back into the forefront, China will need significant imports of corn. The risks favour holding onto corn over the winter.
There have been significant changes in the wheat market over the past couple weeks. First, we see U.S. soft red winter out of the Gulf priced competitively with Russian wheat so that one cargo of U.S. origin traded to Egypt. Russian wheat crop year-to-date exports are running approximately 35 per cent ahead of year-ago levels despite the sharp year-over-year decrease in production. In early November, U.S. hard red winter wheat was also priced competitively with Russian wheat into traditional homes of Central and South America.
Therefore, we see limited downside in the wheat market for the time being. The Australian harvest is well underway and yield results are below expectations. The exportable surplus will be down sharply from year-ago levels as the country contends with one of the worst droughts in history. Domestic Australian feed prices are very strong so that wheat is moving into feed channels.
The Argentine wheat crop has received adverse rains late in the growing season. There were also reports of frost in the province of Buenos Aires. On top of the quality issues, the Argentine government canceled 970,000 tonnes of export licenses that were awarded earlier in August. Argentina will be a larger player on the world market this year due to its year-over-year increase in production; however, it has political and currency issues to work through.
In Europe, French export prices are lower coming in line with U.S. soft red winter out of the Gulf. The problem in Europe is logistics. Rail movement is backlogged and low water levels on the river system have made transporting wheat into the interior mills impossible. In Europe, there is a high correlation between fall precipitation and yields. Given the current conditions, analysts are forecasting winter wheat yields to be down 20 per cent to 25 per cent next year.
What to do: In my previous column, we advised producers to sell their first 20 per cent increment of their 2018 wheat crop. The market is showing large carrying charges; to capture this carry in the market, farmers need to sell now for deferred delivery. Our next sales recommendation will occur in late December or January. U.S. exports will pick up in the latter half of the crop year which will lift all North American prices.