This Week in the Markets — New Wheat Lows, a Rebounding Canadian Dollar, and the Value of Rain



Grains this we week were mostly pressured by a lower U.S. dollar, as the Canadian Loonie rebounded to a whopping 83 cents, and seeding conditions across most of North America remaining pretty good.

U.S. export sales showcased more international buyers canceling old crop wheat contracts and switching things over to buying new crop. Despite that, something was still on the books, as Chicago wheat futures dropped to their lowest levels in five years. Soybean prices saw a bit of a price improvement thanks to concerns of South American sales and logistics (more truckers and port worker strikes), but this is turn sets up for further selling down the road when these labour issues are worked out.

All in all, most areas are settling into the grind that is the seeding season and volume remains light on the market as the old adage “Sell in May and Go Away” will ring true for at least a few days unless an unexpected weather event comes to pass.

That being said, there are some rains in the forecast for the U.S. cornbelt next week and the week after would seriously slow Plant 2015 down, further defending the argument that more soybeans are getting planted in the U.S. this year as this rain delay puts corn planting past the optimal yield window. Also, should that rain fall, it would defend the argument that more weather premium needs to be priced into corn because without perfect weather, the 2015/16 carryout should be a lot tighter than where we end 2014/15.

On that note, Ted Seifried of Zaner Comodities makes the good point that a few wetter days slowing corn planting could be the spark that ignites a short-covering rally in corn as funds still hold a massive short position. This intuitively could be the bandwagon that other short traders in wheat would look to jump on, also helping erase the record short position in wheat and pushing prices higher (also referred to as the “trickle effect”).

Coming back to rainfall, showers last week in Western Australia helped improve soil moisture conditions even more after a needed wet March. On the east side of the continent, some additional rains are in the forecast for this week after last week’s heavy rains. The concern some meteorologists have though is that an El Nino system is still lingering, which could have a detrimental effect on all production especially wheat.

Canadian and American wheat growers are in the same boat as the Aussies when it comes to selling lower quality wheat into Asia as Black Sea sellers have been reportedly offering some pretty good prices to oriental customers. However, Asian buyers haven’t actually locked anything in yet because they believe prices will continue to fall. Case in point, Black Sea wheat traders are offering July-August movement of $210/MT USD, a $30/MT drop from just two weeks ago. Comparably, Australian wheat is being offered at a delivered price of $245/MT (Canadian and U.S. even higher due to freight costs). The underlying question here is whether or not Moscow will remove its wheat export tax to help accelerate shipments out of Russia. Their economy is stabilizing but inflation is still quite high (the cost of what’s needed to make borscht has almost doubled in the last year!)

In Europe, MARS, the agronomy division of the European Commission, recently upped their estimates for average wheat yields in Europe to 87.6 bu/ac, winter barley, to 103.5 bu/ac, and rapeseed to 57 bu/ac. However, they also put out a warning that most of the continent would be in need of some good precipitation soon or their yield forecasts would drop (this includes parts of Russia and Ukraine).

Overall, the market is generally believing that North American production will be marginally below the 2014/15 harvest but I was always told not to count my chickens before they hatch. This is why prices are mostly trading sideways as the computer trader continue to watch crop progress and weather reports to try and gain any edge. If something seriously slows Plant 2015 down though, we can expect market volume and possibly volatility to ramp back up. Otherwise, let’s focus on turning that dirt – turn the tunes up, keep calm (safe), and plant on.

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