Weather and geopolitical risk —This week in the grain markets

Except for wheat, grain markets this week trended mostly lower. The oilseed complex saw a significant sell-off as the start to the U.S. growing season has been good. Further, there haven’t been any noticeable discussion between the U.S. and China regarding trade. The market is interpreting this as bearish for soybeans.

Next week Tuesday, June 12th, we get the USDA’s monthly instalment of the world agricultural supply and demand estimates (also know as, the WASDE report). The biggest numbers that we’ll be watching for are South American 2017/18 production numbers, as well as any changes to the European Union balance sheet.

It’s unlikely that much will be changed on the U.S. supply side of the equation as the start to the 2018 growing season has been fairly positive.

The broader sell-off this week showed some level of impatience, especially with corn markets. Perhaps large contract holders aren’t expecting numbers to align with the average trade estimates.

According to trade estimates, for 2017/18, U.S. corn ending stocks are expected to come in at 2.166 billion bushels (down 16 million bushels). For next year, the average estimate for American corn ending stocks is 1.663 billion (down 19 million bushels). The average estimate for Argentine corn is 32.53 MMT (down about 470,000 MT) and for Brazil the corn crop 84.47 MMT (down 2.53 MMT). Global ending stocks of 2017/18 are forecast to come through at 193.39 MMT for corn. For the new year crop, the average estimate is 157.56 MMT.

For soybeans, analysts expect that 2071/18 U.S ending stocks will come in at 522 million bushels (down 8 million bushels from the May report.) For next year, the average estimate beans is 417 million bushels (up 2 million bushels from the May report).

Average global ending stocks estimates for 2017/18 sit at 91.35 MMT of beans. For the new crop year, the average estimate sits at 86.74 MMT beans.

The average estimate for Argentine beans 37.89 MMT (down 1.11 MMT) and Brazil beans at 117.43 MMT (up 430,000 MT). Next door, we learned this week that Brazil exported 9.76 million tonnes of them to China in May. That was roughly 80% of the country’s total soybean shipments and a new record for the month. The uptick comes at a time that Brazil is facing ongoing currency pressures and a massive crop that could top 119 MMT.

From a crop condition standpoint, 78% of the U.S. corn crop is rated good-to-excellent (G/E), down 1-point week-over-week but still 10 points better than this time a year ago.

The portion of the US soybean crop rated G/E came in at 75%, slightly above trade estimates. However, this a record percentage of the crop rated G/E to start the growing season (and ties the same number that we saw start the 2018 crop year).

Pro tip: the U.S. corn and soybean crops are not made in June.

That being said, Drew Lerner of World Weather Inc. says “that the western Corn Belt and Great Plains will continue with some of the driest and warmest bias this summer.” As you go more east though, the cooler and wetter it will get.

Crop assessment map

In the wheat market, winter wheat G/E ratings fell by 1 point week-over-week to 37% and is now 6 points behind the 5-year average of 43%. Also, 9% of the US winter wheat harvest is in the bin, compared to the five-year average of 4%. The portion of the U.S. spring wheat crop rated G/E started out at 70%.

Speaking of crop conditions, in Europe and the Black Sea, there have been some persistently drier conditions. Without rain, there’s more risk to the wheat crop as it’s coming off a “damp, chilly start to spring.” Similarly, the hot, dry weather in Eastern Europe combined with a below-average area planted with corn in France means some production concerns for the EU maize crop.

In general, weather across Europe is trending a bit bullish for wheat, but also grain markets in general.

Canola futures edged lower this as both old and new crop futures were down $12 per tonne on the week. Cash prices are mostly 18¢ to 25¢ per bushel lower on the week. The reason for this has been increased farmer sales and pressure from the soy oil market which has been dropping like a baby giraffe out of the womb (editor’s note: google this image. Well worth it).

Another bearish datapoint has been the wet weather that Western Canada got recently. While moisture conditions are certainly better than what they were two weeks ago, things are still dry. As of June 3rd though, Statistics Canada’s crop assessment program shows that, dry conditions this spring have affected crop development in Western Canada. Looking at the above map, this was well below average (as observed from 1987 to 2017) for most parts of the Prairies.

Overall, weather and geopolitical risk continue to dominate grain markets. And that’s unlikely to change before the end of June.

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