Opinion
Grain trade this week was quite choppy as the usual suspects of weather, currency swings, and #harvest15 firing up being exacerbated by the closing of the month of July (meaning funds and other speculators may have looked to clean up their books a bit).
Monday might’ve been the worst as front-month contracts for soybeans and canola dropped 3.1% and 3.6% respectively, putting beans back under $10/bu and canola back under $500/MT on the Winnipeg ICE board. Corn also dropped almost five per cent – or the most since September 2013 – as funds across all boards were in the selling mode, accelerated by pressures from deteriorating Chinese markets.
Despite prices on the futures board falling, hedge funds have bought back a few contracts, as managed money puts more dollars into ag funds, betting that the chance of El Niño events in the long-term forecasts will lead to higher prices. That being said, the chances of a full-on El Niño event keep getting pushed back towards early 2016, meaning we won’t see much action before then because of the current supply of grains and oilseeds around the world (plus the stuff coming online from this year’s crop).
On that note, harvest ’15 is picking up speed in Europe, and analysts are now predicting that France’s wheat production will top 38 million tonnes, bigger than last year’s crop and a bit surprising to some market predictors who bet yields would be lower (maybe they forgot that wheat is a weed and can develop through dry periods!). Conversely, corn doesn’t do so well in some of those excessive heat environments, which is why yield and output forecasts from notable players, including MARS, the E.U.’s crop forecasting division.
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Conversely, yet nearby, in Kazakhstan, the USDA’s attaché there recently dropped their wheat forecast to 12.8 million tonnes, more than five per cent below the last official estimate of 13.5 million tonnes. A wet fall, combined with a bit of a late winter created an oversaturated soils, leading to problems with just getting the crop in, establishment, disease, normal maturation, and now harvesting.
Will Egypt drop some of its quality requirements like it did last year to accommodate for some French wheat? My guess is no, given good prospects from France this year and decent supplies coming in off in other Black Sea countries like Russia. Case in point, Russia’s southern Krasnodor region will harvest a record 9.8 million tonnes of grain output this year, including 8.7 million tonnes of wheat on 88 bu/ac average yields! Overally, the Russian Ag Ministry is saying that their comrades will harvest nothing less than 100 million tonnes of grain this year (yet almost every other analyst has them below that).
Comparably, in the U.S., the U.S. Wheat Associates says that this year’s American wheat crop is the worst for falling numbers and other quality indicators since 1998. This translates to many winter wheat fields (both hard and soft red varieties) being harvested and earmarked for nothing but feed as vomi and sprouting are keeping it separated from the milling market!
However, the Wheat Quality Council started their crop tour this week and found areas in Minnesota, South Dakota, and North Dakota that had the best yield prospects in over 20 years at an average yield of more than 51 bu/ac across the 3 states! Digging deeper, durum yields in North Dakota are estimated at 39.2 bu/ac, up from 36.6 last. Prospects for corn and other crops in the Northern Plains are also looking good, including corn crops in Minnesota and Iowa as some timely rains have put crop progress ahead of five-year averages! Overall, despite the various regions that got more than their fair of share of rain in May & June, corn crop prospects continue to look better than once thought, part of the reason we’re seeing such downside pressure on things.
Speaking of downside pressure, ample (excessive?) rains this week in the Canadian Prairies will definitely help yield prospects in a few areas. There’s been some calls that the rains have done as much damage to the crop in some areas as it has helped the crop in other regions. The net-net is a big positive though in my opinion, mainly because it’ll help fill out crops and harvest is already early in Western Canada so pulse crops getting started on won’t be adversely affected too much by any delay (although disease needs to be obviously watched – keep Pulse Canada’s desiccant recommendations in mind as you head down that road. And find tips on desiccant timing here).
Further, the rain significantly improves the soil moisture profile of many areas that have got anywhere from 0.5 to 2 inches over the course of the entire growing season, which is very important for #plant16 when you come to think of it (yes, I am telling you that you should already be thinking about this in the back of your mind).
Ultimately, getting closer to Harvest 2015 hitting full tilt across the North American markets, recent rains have pushed away spot market buyers to wait for the arrival of new crop supplies. This week’s rollercoaster of technicals and fundamentals weighing against one another have resulted in a new lower positions across the board (and non-board as non-futures market prices are down notably week-over-week including durum and lentils).
Pressure to increase interest rates in the U.S. rounds out some of the downside pressure on grain markets. This would put further separation between America’s crawl back to positive economic growth and the rest of the world’s stagnant-to-deteriorating economic situations. What’s the net effect for grain prices? Commodities continue to get more expensive with a stronger U.S. dollar (relative to other foreign currencies), which may be a stickler for demand prospects. Mostly though, what it looks like is that we’re starting down the road of something between a sideways trade and potential seasonal downturn in prices.
Read Last Week’s Market Update HERE
