A Spring Switcheroo
Grain markets have attempted to continue their push to the upside, with last week’s rally starting up again and pulling back a bit on weather forecasts and the United States (U.S.) dollar being volatile. Large amounts of money have entered the commodity markets over the past two weeks, which has helped support higher levels as the buying spree continues. By now, the market should have been able to price in the value of the corn lost in Brazil to drought and soybeans lost in Argentina to floods. However, now I am questioning whether or not it has priced in the extra U.S. soybean acres that have been bought since the November 2016 contract jumped more than $1.25 in the past seven weeks to above the coveted $10/bushel handle in Chicago. With only 30 per cent of the U.S. corn crop planted as of this past Sunday (well ahead of the 16 per cent five-year average), there is still plenty of time for more than just one or two million acres of prospective corn area to switch over to beans.
Even with expanded acreage, the bright minds over at the University of Illinois believe that average 2016 U.S. corn and soybean prices could come in closer to $4.25 and $10.50 in 2016, respectively. This is mainly due to slightly smaller global production this year than what was previously estimated, and U.S. exports getting a good push through the end of the marketing year. Why? As mentioned, the U.S. dollar has fallen a bit, meaning it makes U.S. priced commodities cheaper. Conversely, other currencies are appreciating against the Greenback, including the likes of the Brazilian Real (+12 per cent since the beginning of 2016), Russian Ruble (+12 per cent year-to-date (YTD)), Canadian dollar (+10 per cent YTD), Australian dollar (+6 per cent YTD), and Eurodollar (+4 per cent YTD).
The Canadian dollar, specifically, continues to make incremental gains towards 80 cents U.S.D, surpassing 79 cents briefly last week and then coming back and holding strong above that level (as of time of writing). As per the PDQ grain pricing website, pdqinfo.ca, in the past two weeks, while Minneapolis spring wheat futures have jumped 2.3 per cent on old crop and 2 per cent for new crop, net cash prices for old crop in Western Canada are basically flat, whereas new crop values have dropped almost a nickel. On the flipside, canola has been able to ride the coattails of soybeans, with net cash prices up over 30 cents per bushel for old crop and 18 cents for new crop in the past two weeks!
Helping canola out was obviously last week’s StatsCan forecast for what is getting planted across the Great White North this spring, as it showed just 19.3 million acres of the oilseed getting planted in 2016, down 3.7 per cent from last year and 5.3 per cent from the five-year average. Total wheat acres across Canada are also seen lower, albeit just by 1.3 per cent year-over-year, to 23.9 million, with the a majority of one million acres lost in spring wheat (16 million acres total) being offset by a nearly 26 per cent year-over-year increase in winter wheat to 1.74 million acres. The obvious change was in pulse crops as the areas being planted with lentils is set to grow by 30 per cent from last year to a record 5.14 million acres (+73 per cent from the five-year average), while pea acreage is also seen at a record of 4.28 million acres (+16.3 per cent from last year, +25 per cent from the five-year average).
Overall, the market is trying to price in Plant 2016 concerns in North America with rain in the forecast across the Midwest, but are also being driven “crazy” by varying estimates on the size of South American crops, despite better weather helping the harvest in Argentina and crop development in Brazil. Plant 2016 is ahead of pace in the U.S. and recent shots of precipitation (be it rain or snow) in Western Canada has made those yelling about soil moisture quiet down a bit. Factor in some recent swings in currencies, the market is supporting higher U.S. exports for all three major row crops (wheat, corn, and soybeans), which would be a significant switch from the usual spring slowdown.
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