Opinion
Grains saw a choppy end to the trading month of May as government reports seemed to sway the market the most. Corn and wheat prices on the futures board saw their values fall as USDA crop progress reports reminded everyone that a lot of corn is already in the ground and that wheat crops in the south are somehow weathering the large amounts of rain they’ve been getting hit with.
Oilseeds saw a bounce this week, mostly on Friday, thanks to the U.S. Environmental Protection Agency putting out a bullish biodiesel blending target of 1.7 billion gallons, a significant jump from an earlier post of 1.2 Billion gallons. Canola was also supported by a stronger U.S. dollar, helping push front month July contract near the $475/metric tonne level we’ve been calling for and the fall and winter contracts up above $460.
The International Grains Council (IGC) said this week that they expect an EU rapeseed crop of 21.9 million tonnes and a Canadian canola crop of 14.9 million tonnes. On the trade front, the IGC is expecting global consumption to fall for the first time in nine years to 69.2 million tonnes, a drop of 2.8 million tonnes year-over-year. Nation-specific, both the E.U and China are seen using 500,000 tonnes less canola/rapeseed than they did last year, meaning 24.8 million and 18.7 million tonnes of demand respectively.
On the heels of removing their wheat export tax last week, Russia approved a new one this week, effective July 1st. The new tax will only kick in at higher price levels and is set at 50% of the export price minus 5,000 rubles (roughly $105 USD). Many market players are seeing this new tax as very questionable as it only will create problems for the market if the price of wheat jumps well above the $200/metric tonne prices they’re currently sitting at.
The EPA sent love to the oilseeds market but not to corn growers as they released an ethanol blending mandate of 13.4 billion gallons for 2015. The release of the target was long overdue and below what the market was expecting and well below the original forecast of 15 billion gallons for this year. With less corn “required” to go to ethanol, the fundamentals of the market continue to squeak bearish.
On that note, it’s not entirely proper to compare this year’s start to the corn growing season to that of 2012 when dry weather led to $8/bu for the coarse grain, mainly because there’s an additional 1 billion (or more) bushels in carryout. Adding to that is the aforementioned R.F.S. ethanol mandate and the Chinese not being as aggressive in the market, sourcing more from Ukraine instead.. There are some questions around the final eight per cent of the crop getting into the ground and/or how many acres will get categorized as “Prevent Plant” or potentially get switched over to soybeans.
Overall though, most of the market is focused around the rains – who’s getting it and who isn’t getting it. The southern Plains are sure getting a lot (Houston is flooding!) with more rain falling over the American Memorial Day long weekend than was forecasted (up to 10 inches in some areas!). This will likely have varying quality effects on the crops in the area as the extra moisture is challenging final crop development and an early harvest!
On that note though, there’s speculation that anything lost in Oklahoma and Texas could be made up by Kansas where crop development is a little behind but there will be more feed wheat for the market to digest. Speaking of field activity, the US Midwest will likely see some of that southern storm system but it’s mostly welcome, albeit for the last few million acres of soybeans and corn crops that still needs to be planted.
Here in Canada, areas near the border continue to remain dry with some fields getting a drink tonight but not enough to help move the crop along.
