Grain markets saw a nice pop this week as 2017/18 crop production concerns helped create some bullish buzz. Corn and spring wheat were the biggest winners of the week, both gaining 4.1% since last Friday, followed by Chicago wheat, up 3.85%. Canola wasn’t far behind, gaining more than 3% for the week, along with oats, up 2.55%. While there isn’t too much negative production headlines about the U.S. soybean crop, it played follow the leader with the rest of the grains complex, gaining 2.25%.

Some hot, dry weather hit the Northern Plains this past week on a crop that’s already looking sub-par in terms of good-to-excellent rating. For example, the Dakotas are expected to grow 11% of all U.S. soybeans and 9% of the total U.S. corn crop in 2017 but just 62% of the South Dakota corn crop is rated G/E, versus the 74% it was a year ago. Comparably, North Dakota is sitting 19 points below last year’s rating with just 67% rated G/E. That being said, 25% of the state is considered to be in moderate drought while the other 3/4s is considered abnormally dry. Our good friend, Chuck Penner over at LeftField Commodity Research, points out that North Dakota durum good-to-excellent (G/E) is at 27%, versus the 78% it was at a year ago. Similarly, Chuck points out that the Montana lentils portion rated G/E dropped 12 points to just 32%.

Speaking of lentils, monsoon season is starting up in India and forecasts are that the rainy season will be about 98% of the long-term average, according to the India Meteorological Department. The agency’s forecast was up 2 points from their previous estimate, measuring it off the 50-year average of 89 centimeters of rain (or 35 inches!). While conditions for crop potential though look good in India, there’s certainly some things worth noting in North America, namely U.S. acreage jumping 53% this year to nearly 500,000 acres, as pointed out by Chuck Penner. I would have to agree with him that the increased acreage may mean some softer demand by U.S. for Canadian supply, which saw its own 10% decline in acreage.

The USDA came out with its June WASDE report on Friday, but it came and went without much fanfare as the number-crunchers in Washington didn’t change much, especially on the domestic front. Despite some obvious late / replanting of this year’s crop, the USDA kept yield and production estimates unchanged from last month, sitting at 170.7 bushels per acre for corn and a 48 bu/ac for soybeans.

Wheat production in both Argentina and Russia were raised by 3% from the previous estimate last month to 17.5 and 69 million tonnes respectively. Compared to last year though, this would be a 5% drop for Russia whereas Argentinian production is up nearly 10%. However, Russia’s available stocks by the end of 2017/18 is expected to climb 21% to 11.63 million tonnes as a result of a bigger carry-out to end the 2016/17 crop year, mainly because of less-than-expected exports. A smaller crop is expected in Germany but total EU wheat production is expected to be up almost 4% from last year’s output.

In Europe, growing conditions have improved across most of the continent but the drier start to the growing season has prompted some downgrades. Comparing some of the other estimates for the European soft wheat crop, Strategie Grain leads the way at is at 142.7 million tonnes, Coceral is at 142 million tonnes, the EU Commission is calling for 141.3 million tonnes, and the International Grains Council is forecasting 141.2 million tonnes. As for the durum crop, the EU Commission is the most optimistic at 8.75 million tonnes, followed by the IGC at 8.7 million, Strategie Grains at 8.6 million, and then Coceral at 8.05 million tonnes.

As for rapeseed, the E.U. Commission’s forecast of 21.9 million tonnes is sitting at the top, followed by Coceral at 21.5 million tonnes, Strategie at 21.35 million, a 21.1 million-tonne update from the U.S.D.A., and then a 20.8 million-tonne forecast by the IGC. This European rapeseed crop looks to certainly be bigger than last year, which seems to be a consistent trend across most of the oilseed complex (and part of the more bearish sentiment lately). One of the more bullish variables may be available canola supplies in Canada as visible supplies are down to their lowest levels in 3 years at 702,700 MT. However, USDA maintained its forecast of a 21 million-tonne canola crop for Canada this year in the June WASDE.

Continuing on through the WASDE balance sheet, global soybean carryout was raised by almost 4% from the previous estimate, up 2.08 million tonnes to 92.22 million. This is technically just a 2.3% increase from last year’s carryout but the most notable increase is in the U.S., where available beans by the end of 2017/18 will be up 13.85 year-over-year to 13.5M tonnes. A similar story is being seen in Argentina, with their carryout raised by 5% from last month to 32.5 million tonnes. The reason for this is a larger carryout from 2016/17 in the U.S. and a bit of slowdown in exports from Argentina.

Societe Generale has picked up its forecast for soybean prices a bit, suggesting that the weather conditions in the U.S. could be enough to create some supply concern (I’m not that convinced yet) and the low prices could be enough to stimulate more buying. The weather factor is also why the French bank increased its forecast for corn prices, suggesting a new trading range on the Chicago Board of Trade of $3.80 – $4.50 USD / bushel over the next 6 months. With lower acres and sub-par conditions to start the season, SocGen is only expecting an average U.S. corn yield of 168.5 bu/ac. However, without any prolonged heat or dryness, anything that gets above the $4 handle is definitely sellable, especially considering some of the solid carry options available to lock in the price now for a delivery at a later date.

The major move up this week was because of some hotter temperatures in major grain-growing regions and lower crop ratings in most regions around North America. As such, traders were busy covering shorts combined with a lower U.S. Dollar a few days. As such, Minneapolis wheat closed over $6 USD / bushel for the first time in 2 years while front month corn prices continue to play around the aforementioned psychological levels of $4 USD / bushel on the Chicago futures board.

For corn, there’s more suggestions now that the national yield may lose 2-3 bushels off the forecasted 170.7 bu/ac from the USDA. Further, due to replanting issues, the corn crop may lose 1 – 1.5 million acres from the expected 90 million, meaning, with the combined yield loss, 2017/18 carryout could drop below 2 billion bushels (but since the USDA didn’t change the forecasts, it didn’t happen this month). While the bullish catalysts is clearly on the supply side with production concerns, the bearish factors are centering around Brazil starting to ramp up their corn exports program as their harvest starts up, As such, while the North American crop has to get growing, international demand will follow where the fresh supply is available.

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