Market sentiment remains bearish for most agricultural commodities, including the major crops grown in Western Canada. Prices have been declining in most markets since the recent highs were set at the beginning of the Russian invasion of Ukraine in 2022. Markets have gradually adjusted to the news coming from the conflict and has effectively removed all of the war risk premium. Recent attacks by Ukraine on port infrastructure at Rostov and Novorossiysk have been met by collective yawns from the grain and oilseed markets. A true sign of a bear market is when bullish events occur and the markets move lower.
Oilseed markets have moved lower during the growing season mostly due to record production prospects for the U.S. soybean crop. The U.S. Department of Agriculture is currently estimating the soybean crop at 4.59 billion bushels which is an all-time record. The average soybean yield is 53.2 bushels per acre which is also a record for the U.S. This production increase is expected to push U.S. soybean ending stocks to 560 million bushels which is up by 215 million bushels from the 2023-24 marketing year. The large ending stocks of soybeans are driving futures prices lower for all oilseed crops. USDA is projecting a drop in farmgate soybean prices by US$1.70 per bushel, to US$10.80 per bushel. For reference, the average soybean farmgate price in the 2022-23 crop year was a record US$14.20 per bushel.
Canola prospects in Western Canada are not as rosy as those for U.S. soybeans. After a good start to the growing season, canola yields in Western Canada have moved from above average, in early July, to average. Prices have not reflected the deteriorating conditions for the canola crop as the nearby ICE November contract is off by more than C$100 per tonne from the end of June. Most of the losses in canola can be traced to the weakness in the U.S. soybean market.
Grain markets have also been pressured by favourable growing conditions in the U.S. Corn Belt. Corn production is forecast by USDA to reach 15.15 billion bushels, which is slightly lower than last year. More concerning for the market is that ending stocks are forecast to hit 2.07 billion bushels. This is driving the estimate of the average farmgate price for corn this year to US$4.20 per bushel. The average farmgate price in the 2022-23 crop year was US$6.54. The dramatic drop in corn prices is impacting Canadian feed grain markets. Feed barley prices are struggling in face of strong competition from imported U.S. corn. Corn has also been partially responsible for pulling wheat prices lower. With a large corn crop on the way, wheat will have a difficult time to rally significantly.
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Spring wheat markets have been trading lower since the seeding of the 2024 crop was completed in late May. U.S. wheat production is expected to recover this year with production reaching just under two billion bushels. Spring wheat output is also expected to increase by 31 million bushels from last year to 499 million bushels. Wheat ending stocks in the U.S. are expected to increase by over 126 million bushels, to 828 million bushels. The increase in ending stocks in the U.S. is only part of the picture for the global wheat market.
Global wheat production is expected to hit yet another record of 798.3 million tonnes. Wheat ending stocks are also expected to increase to 256.6 million tonnes. The major wheat exporter situation is more constructive for wheat prices with ending stocks forecast to drop by 4.6 million tonnes, to 53.7 million tonnes. This lowers the stocks-to-use ratio to 13.2 per cent, which is the lowest level in over 10 years. Wheat stocks in the major exporters are not burdensome and in fact have become relatively tight. Wheat markets seem to be very comfortable with the lower stocks in the major exporting countries.
The negative sentiment in the markets has been exacerbated by the bearish stance of managed money funds that are holding record-short positions in spring wheat, canola, soybeans and corn. There are many reasons for the funds to hold short positions in the commodity markets, but the main concern seems to be that a slowing economy will slow demand for all agricultural commodities. The potential for slowing demand combined with large U.S. crops have resulted in the record short position. A rally in the agriculture commodity markets will only occur when the funds unwind their current short position.
It may seem counterintuitive that Canadian production is declining, and prices still refuse to rally. Large crops south of the border are overwhelming the impact of the production losses in Canada and have been pressuring prices. Just remember that the corn carryout in the U.S. is over 50 million tonnes, which is approximately the size of Canadian wheat and canola production. Until the U.S. situation becomes less burdensome for corn, soybeans and wheat, Canadian prices will have a hard time rallying.
