Opinion
Grain markets all pulled back this week on some bigger yield reports in the U.S. corn and soybean belt, while wheat markets took a breather from their bullish run.
The U.S. corn crop is certainly advanced, with 44 per cent of fields dented as of last Monday. For perspective, going into the Week 34 USDA crop progress report on August 27th, the 5-year average for U.S. corn dented is just 40 per cent.
This past week, the ProFarmer Crop Tour offered little optimism for a downturn in production and yield
expectations. Despite reports of significant variability in corn yields across the Corn Belt, no numbers
really jumped out to suggest that the USDA’s record yield expectation is a pipedream.
Thus, corn prices lost about four per cent this week with the December contract dropping more than 15 cents to close at $3.63 USD / bushel in Chicago. The March 2019 contract closed at $3.75.
Here’s a breakdown of the ProFarmer Crop Tour’s results by state, but the final national average was
pegged at 177.3 bushels per acre. This a little more than one bushel below the USDA’s current record-
breaking forecast for average American corn yields.
Looking forward, the range of final nationwide average yields will come in somewhere between 175
bushels and 180 bushels. The question we’re asking, is if the market has priced in these numbers, and
what is the corresponding effect on U.S. export demand.
Ultimately, the crop tour seems to confirm the current USDA yield estimate and traders see the possibility of even higher yield due to better weather.
Also this week, traders were pricing in the strong likelihood that most of America’s main corn and
soybean-growing regions will get one last drink from Mother Nature before the end of August. This
precipitation, combined with warm-to-hot forecasted temperatures forecasted through the first week of September, is aiding the bears case.
That being said, ProFarmer estimated national average soybean yields at 53 bushels per acre. This would be a new record and nearly 1.5 bushels better than the USDA’s current estimate. For perspective, when the ProFarmer Crop Tour’s pod counts were all complete, the average state saw double-digit gains year-over-year.
These big numbers helped push soybean prices in Chicago down by more than four per cent, with the November contract losing 38 cents to close at slightly above $8.54 USD / bushel. The January 2019 contract lost 37 cents to closed at $8.68.
This bearish week in soybeans didn’t really help canola prices as the latter gave up most of its gains
made over the last few weeks. Explicitly, the November 2018 and January 2019 canola contracts each
dropped 2.5 per cent since last Friday to finish the week at $498.10 and $503.10 CAD / MT respectively.
Not helping the canola market is the slow start to the 2018/19 Canadian export campaign. Through
Week 3 of the crop year, exports of just 422,500 MT are eight per cent behind where we were at this time a year ago, in addition to being three per cent being the five-year average.
The usual harvest price pressures are also starting to creep in as producers are looking to capitalize on these recent multi-week highs and sell right off the combine. Spring wheat is one of those crops, but Friday was probably not the day to sell.
To be blunt… Minneapolis spring wheat prices lost nearly six per cent on the December 2018 contract, or 36 cents, to close at just under $5.90 USD per bushel. The March 2019 contact lost 35 cents, or 5.5 per cent, to finish the week at $6.05.
This was nothing compared to winter wheat prices though. Kansas City HRW wheat prices on the
December 2018 contact lost nearly eight per cent in the past week to close at $5.45. Meanwhile, over in Chicago, SRW wheat prices lost 7.7 per cent or nearly 45 cents, to finish the week at $5.35 USD / bushel.
The dryness along the Black Sea and in many parts of Europe has provided the recent catalyst for higher prices, but this week seemed to be on of profit-taking across the grain markets complex. That being said, while the EU crop is looking smaller, the quality is still looking okay.
For example, estimates peg the French crop at 34 MMT, down from 36.6 MMT last year. But
FranceAgriMer says that 91 per cent of the wheat coming out of the country will have protein levels above 11.5 per cent. The group says that 35 per cent of their country’s wheat crop sits between 12 per cent and 12.5 per cent protein.
However, this French wheat quality data is technically worse year-over-year. Last year, almost 75% of
the harvest had a protein content above 12 per cent. However, the wheat is still extremely good for the bakers, as 97 per cent of the French soft wheat crop has a Hapberg falling number above 240 seconds. For comparison, just 83 per cent of last year’s French wheat crop had falling numbers of 240 or higher.
Overall, 75 per cent of the harvest is being categorized as either “Superior” or “Premium” classes, the two segments that represent France’s wheat with a protein content of 11per cent or above, and a falling number of 220 seconds or higher. While the macro numbers suggest that a smaller crop is good for prices, it’s important to remember that the quality available to buyers isn’t just chaff.
Here In North America, ergot issues have been reported in the North Dakota spring wheat crop. While it is a bit early, loads have been getting rejected because of the fungus level being too high.
That being said, while the global wheat crop is certainly looking smaller, it’s unlikely wheat prices will
see 2008-like values, since major importers (i.e. North Africa) are in a better position this year, thanks to some decent harvests of their own. Conversely, 2018/19 ending stocks of the eight major wheat exports in the world will sit on just 20 per cent of global inventories, their lowest level since 2007/08!
At the end of the day, we’re seeing the usual harvest price pessures come into the grain market.
However, what’s unusual is the advanced progress of this year’s crop in North America, as well as the
trade war factors — which we haven’t mentioned here today — but are still very prevalent.