The Northern Hemisphere wheat harvest is in the early stages. Corn and soybean markets are factoring in a risk premium due to uncertainty in U.S. production.
Quick look
Soybeans: Brazil and Argentina soybean harvests are complete and basis levels are strengthening.
Corn: Ongoing Brazilian and Argentinean harvests are pressuring world values.
Wheat: The U.S. winter wheat harvest is in high gear with a favourable forecast. U.S. hard red winter wheat will price into domestic feedlots during the summer.
Soybeans
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Ontario farmers have been active sellers of old crop soybeans after the planting period. Commercials have also been saturating demand from domestic crushers prior to their downtime for upgrades and maintenance. This limited imports of U.S. soybeans during the first half of June.
At the time of writing this article, soybean prices just south of the border in Michigan were hovering at US$11.41/bu., while crusher bids in Ontario were C$15.25/bu. or US$11.43/bu. Canadian crusher bids were not high enough to attract significant imports.
We continue to forecast significant imports of U.S. soybeans in the final three months of the crop year but the market has some work to do in the short term. Basis levels from Canadian crushers are expected to strengthen so that domestic crusher bids are premium to the world market.
On June 10, U.S. soybeans were offered at US$357/tonne f.o.b. the Gulf while Brazilian soybeans were quoted at US$452/tonne f.o.b. Paranagua. Argentinean soybeans were offered at US$460/tonne f.o.b. tide water port. Ontario soybeans were valued at US$455/tonne f.o.b. St. Lawrence port. Ontario offers need to move to a US$20/tonne premium over South American values to curb exports late in the crop year.
The Argentinean soybean harvest is moving into the final stages and the Brazilian harvest wrapped up earlier in April. The final 10 per cent of the Brazilian harvest was delayed due to flooding but this had minimal influence on the market. Export soybean basis levels are strengthening now that harvest selling pressure from Brazil and Argentina is easing.
We are seeing aggressive exports from Argentina for soymeal and soyoil. Seasonally, palm oil production also increases during the summer, which weighs on the world vegetable oil market.
The Ontario soybean crop is developing under optimal conditions. Traders are factoring in a crop size of 4.2 million tonnes, up from the 2023 output of four million tonnes and up from the five-year average of 3.9 million tonnes. Traders are factoring in a U.S. crop of 123 million tonnes, up 10 million tonnes from the 2023 output. There may be some intended corn acres switched to soybeans due to excessive rain during spring.
The U.S. has experienced optimal conditions for early crop development. However, the forecast for part of the Midwest calls for below normal precipitation and above normal temperatures. We’re expecting the soybean market to incorporate a risk premium due to the uncertainty in production.
What to do: We advised Ontario farmers to finish old crop sales in our previous issue. We advised farmers to sell their first 20 per cent increment of new crop earlier in winter.
Corn
Ontario farmers have been light sellers of old crop corn stocks after planting. On-farm corn supplies in Ontario are expected to drop to a historical low at the end of the crop year.
In the previous issue, we said the Ontario corn market needed to trade above world values to curb exports. This is exactly what we are seeing. Domestic demand is strong enough to absorb producer selling, thereby limiting supplies for offshore movement.
Ethanol margins have improved with stronger crude oil values. Ontario cattle on feed inventories will decline but on-feed numbers are slightly above year-ago levels. The domestic market is rationing demand away from export channels.
At the time of writing on June 10, U.S. corn was offered at US$210/tonne f.o.b. the Gulf, while Brazilian corn was quoted at US$203/tonne. Argentinean corn was offered at US$195/tonne f.o.b. up river port. Ontario corn was quoted at US$220/tonne f.o.b. St. Lawrence port. French corn was offered at US$230/tonne f.o.b. La Pallice.
Brazilian and Argentine corn will displace Ontario origin into northern European ports. We have seen some U.S. corn trade to Europe over the past couple weeks as well.
As of June 10, we estimated the Argentine corn harvest at 35 per cent complete. There has been minimal progress over the past two weeks. However, we expect the Argentine harvest to be completed by the end of July.
In Brazil, the Safrinha harvest was approximately five per cent complete and we’ll see harvest move into high gear by the end of June. The bulk of the harvest will occur in July, resulting in significant harvest pressure on the world market in late July and early August. Production estimates have become a secondary factor for now.
European corn conditions have been favourable and traders are factoring in a year-over-year production increase of five million tonnes. This may stem imports of Ontario corn in the 2024-25 crop year. More importantly, the quality of the wheat crop will also have a large influence on the feed grain price structure in Europe.
In the U.S., the corn crop has experienced greenhouse conditions. However, the longer-term forecast calls for above normal temperatures and below normal precipitation for a large portion of the Midwest. Conditions are not improving and will slowly decline.
The USDA had factored in trend-type yields but traders will be lowering their production estimates. U.S. corn offers will eventually trade at a sharp premium to South American origin, stemming export movement.
We’re expecting Ontario corn production to reach 9.8 million tonnes this year, up from the 2023 crop size of 9.6 tonnes and up from the five-year average figure of 9.2 tonnes.
What to do: We advised farmers to finish old crop corn sales in the previous issue. We’re expecting a weather rally during summer, which will be a good opportunity to make our first new-crop sale.
Wheat
The Ontario winter wheat crop is developing under favourable conditions. We’re forecasting Ontario soft red winter wheat production to reach 2.1 million tonnes, down from 2.7 million tonnes last year. The five-year average output is 2.1 million tonnes.
Depending on quality, we’re expecting domestic food usage to be 800,000 tonnes. Feed usage could reach 400,000 tonnes and exports will likely be around 900,000 tonnes.
The U.S. soft red winter wheat crop is projected to finish near 9.3 million tonnes, down from 12.2 million tonnes last year but up from the five-year average of 8.1 million tonnes. We’re expecting a year-over-year increase in exports to the U.S. There are reports of quality issues with the U.S. soft red winter crop due to excessive rains.
The wheat crop in Mexico has experienced drier conditions, tempering yields. In past years, we’ve seen Russian wheat trade into Mexico as well but drier conditions in Russia will be a gain for Ontario in the 2024-25 crop year.
At the time of writing this article, French soft wheat was offered at US$257/tonne f.o.b. Rouen; U.S. soft red winter was quoted at US$245/tonne f.o.b. the Gulf; and U.S. hard red winter was valued at US$280/tonne f.o.b. the Gulf.
It is interesting to note that Russian wheat was quoted at US$280-$288/tonne f.o.b. the Black Sea. Ukraine milling wheat was offered at US$272/tonne. Drier conditions have caused Black Sea values to increase. We’re now seeing U.S. hard red and soft red trade into Central and South America with expected exports to Southeast Asia over the next couple of months.
The futures market has been volatile. Turkey has halted wheat imports until Oct. 15 and the Turkish market was Russia’s second largest customer. Turkey has some awkward domestic policies/milling subsidies and it shouldn’t be an importer. Don’t’ put too much weight on this.
The U.S. hard red winter wheat harvest is in high gear and the weather looks optimal for the next 30 days. Early yield results are better than expected and U.S. farmers will sell 50 per cent of their production during the summer months.
The U.S. soft red winter harvest will occur in July at a similar time as the European harvest. Weather conditions have improved in Europe but traders are watching for quality issues in parts of France and Germany.
The lower Russian and Ukraine output has become a secondary feature. This will resurface as a main event later in fall, once the Northern Hemisphere harvest has wrapped up. Russia will not be a dominant player like last year and we could see changes in domestic policy if wheat prices rally later in winter.
What to do: We’ve advised farmers to be 100 per cent sold on their 2023 production and 20 per cent sold on their expected 2024 output. Producers should avoid selling during harvest as this is usually the lowest price of the year. We’re expecting a wheat rally in fall, which will bring a prime opportunity to make the next sale in late October.
