Grain prices ended the week lower with rains arriving in some major growing regions. The market’s main focus now is on where rain is falling, and in what quantities, specifically eyeing Kansas, Missouri, Nebraska, & Iowa where a fair amount of acres still have to go in.

SovEcon recently raised their expectations for the Russian crop to 99 million tonnes (Russian Ag Ministry at 105 million tonnes) on the basis that they’re seeing good moisture profiles in the southern regions, where many have been concerned about dry weather. The bigger concern on their minds is how much forward selling merchants are doing as they try to manage their risk around the new wheat export tax implemented. New crop selling by international traders is down about 25-30% from last year, according to SovEcon, as the currency exchange component has the potential to exponentially inflate the cost of the tax.

Clearly, the focus is on letting the currency market reign in Russian wheat exports. Specifically, SovEcon says that Russian policies do not encourage confidence for farmers, exporters, and/or investors. Expectations are that the new wheat export tax will have the most effect on durum and hard red wheat shipments, which is significant given expectations that the Russian wheat crop looks pretty decent. Simply put, if the Russian ruble starts to decline again (indicating more Russian economic woes), there’s less incentive for anyone to export wheat (and this will intuitively add risk premiums to the wheat market).

The June World Agricultural Supply and Demand Estimates (WASDE) report released on Wednesday came in without much fanfare and mostly bearish for corn and wheat but slightly bullish for soybeans. With less acres possibly going in this year in the Midwest because of wet conditions, even a 46 bu/ac average yield won’t make up for the bet that 1.5 million acres won’t get seeded.

That in mind, with 85.5 million acres at that average yield, that’s still a 3.9 billion bushel crop (pretty big!). Nonetheless, the market continues to price in these weather realities but any bearish news is likely to pull things back pretty quickly, given relatively decent production expectations for the entire world.

Digging deeper into WASDE, the U.S. forecasted production was raised to 2.12 billion bushels, nearly 100 million bushels above last year’s harvest, but some are questioning whether or not this higher number accounts for the lower expected yields in the U.S. Southern Plains. On that note, despite domestic consumption for feed wheat up, the 2015/16 US wheat carryout number was increased by 21 million bushels to 814 million bushels, 5 million bushels above pre-report trade expectations.

With those bearish numbers, wheat fell this week with corn playing follow the leader, as ethanol use was decreased by 25 million bushels, putting the 15/16 carryout at 1.876 billion bushels, with a average yield estimate of 166.8 bu/ac. As for soybeans, increases in domestic crush and exports led to a soybean ending stocks number that was less than what the market was expecting, so slightly neutral-bullish.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) also recently released their expectations for production, highlighting expectations of an El Nino eating into wheat and canola output. Specifically, the wheat number was pegged at 23.6 million tonnes, the 2nd straight year of production declines, while the canola crop is being forecasted at 2.96 million tonnes, the 3rd straight year of decline.

Truthfully, the majority of the production drop is being attributed to less seeded area – wheat down about 250,000 acres to 34.1 million and canola down 990,000 acres to 5.8 million. Aussie oats production was also highlighted as up 26% year-over-year to 1.385 million tonnes, thanks to area up 18%. Barley area got increased by 740,000 acres this year to 9.9 million while chickpeas saw the biggest increase, up 59% year-over-year to 1.67 million acres.

Conversely, Western Canada remains dry and Chuck Penner of LeftField Commodity Research says that every 5% drop in yield in lentils and peas would equate to a total output drop of 120,000 and 200,000 MT, respectively (given current estimates for acreage). Some areas across Western Canada got rain this week and more is forecasted for the weekend, but I don’t think any meteorologist would put money on the line these days! Further, I’m no agronomist but I’m pretty sure we can’t expect average yields on only 1 or 2 inches of rain in a critical phase of crop development.

Nonetheless, seeing markets pulling back from last week’s highs adds to our mantra that you need to make sales when you can, and not when you have to, and selling into those rallies, — even if it’s just 10% — is a great strategy.

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