Weather markets not working on all crops — this week in the grain markets

Grain prices again found significant gains this past week as the complex continued to price in weather and corresponding production risks, especially in the U.S. Midwest. The weekly performance was augmented by a significant rally on Friday that saw corn prices jump 14 cents/bushel and Chicago wheat climbing 19 cents! With the forecast for the next few days suggesting more rain, speculators are adding more risk premium to the grain markets and it’s unlikely to let up until the rain does.

Wheat prices found the biggest gains this week as major American winter wheat production areas – especially Kansas – have seen more precipitation in the month of May than pretty much any other year in the record books. This can obviously have a significant impact on the quality of the crop as it heads out and gets closer to harvest. Despite the heavy moisture, the USDA says that, in Kansas, America’s largest wheat-producing state, the percentage of the winter wheat crop there rated good-to-excellent (G/E) has ticked higher every week to now sit at 60%.

The other notable crosswind in grain markets this week was that corn and soybean planting is way behind and the U.S. federal government is, inadvertently, getting involved. Earlier in the week, it was reported that President Trump was going to offer up another trade war aid package to American farmers worth up to $20 billion USD, including $2/bushel for soybean farmers! This would be second round of payments made to farmers within the past 12 months. With that extra two bucks, it would significantly influence those farmers who still are supposed to plant more than 45 million acres of corn plant as of Sunday, May 19th (AKA they’d switch more corn acres over into soybeans).

It was confirmed later in the week by the White House and USDA that there is going to be another $16 Billion for the American agriculture industry, but there was no confirmation on specific dollar amounts per crop as the administrators said they only wanted farmers to be influenced by general market conditions. If we take a deeper look at the economic impact, Gro Intelligence suggested that if that $2/bushel subsidy was realized, it would raise expected revenue for the average American soybean farmer to $463 USD/acre. If the subsidy matches the other previous payment of $1.65 USD/bushel, revenue would be $447.

It’s been estimated though that without the $2/bushel for soybeans that was suggested earlier in the week, more U.S. farmers will stick to their guns and plant corn. Brokerage shop Allendale says that “Corn acres will still fall from the March report, perhaps by 2 to 4 million acres,” but the 8 million-acre handle that some were talking about is very unlikely.

Kluis Advisors shared that, “in the northern Corn Belt, corn planted after Memorial Day only has 77% of normal yield potential. They are estimating that over 32 million acres of corn will get planted after the upcoming U.S. long weekend! Quite simply, this is what has helped corn prices drive up back over the $4 mark in Chicago for the first time higher for the seven straight sessions (that is, before taking a breather this morning).

Oilseeds didn’t really follow corn and wheat prices higher though as it’s clear that there’s lots of supply in the world. A recent Reuters poll of Brazilian soybean production pegged this past harvest at 116.2 MMT, which is slightly below the USDA’s latest estimate of 117 MMT, but it would still be the second-largest crop ever.

While dry in Western Canada, canola prices have found a bit of support by Agriculture Canada put a major damper on things by significantly lowering their forecast for canola exports this year and next, and thus, raising ending stocks. More specifically, AgCanada dropped their forecast for 2018/19 canola exports by 500,000 to 9.3 MMT and their 2019/20 estimate by 2.5 MMT (!!!) to just 8 MMT. Compare this to the USDA’s Canadian attaché who also updated their estimates, lowering 2018/19 canola exports by 850,000 to 9.75 MMT, but raised their 2019/20 estimate by 200,000 MT to 10.3 MMT.

Certainly, there are some discrepancies in terms of how much of an impact the slowdown in Chinese buying will affect Canadian canola exports. What’s also certain though is that there will still be a relatively large Canadian canola harvest (close to 19 MMT, as forecasted by the AAFC).

Bottom line: corn and spring wheat prices have certainly enjoyed a strong run over the last 2 weeks. It’s certainly possible that this trend will continue as wetness in the U.S. and Ontario and dryness in Western Canada get priced into the market. Keep in mind though that for the latter, it just takes a shower or two for speculators lose that bullish taste in their mouths.

hat said, I think that the window to capture the highs in the corn, canola, and wheat markets before the North America harvest is likely going to happen in the next 2 to 3 weeks. As this aligns with historical timing of the highs, a healthy exercise for you might be to recall if, in the past during this time of year, you’ve experienced any regret not selling what was left in the bin or contracting more new crop. My gut says that you have gone through this before and so, accordingly, I’d challenge you to sell into strength. This means not selling everything, but breaking up your overall sales goal over the next few weeks into smaller increments.

Certainly, this something to think about over what I hope is a great weekend for your family and farm!

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