Cruising into June, the grains arena continued to see bulls and bears trade blows. This back and forth ranges for all crops. With corn, it is the slower Argentine harvest and smaller Brazilian second crop contrasting the pretty good start for United States (U.S.) corn fields. Decent rains in Australia and Canada are helping wheat prospects, but wetter conditions may affect quality in southern U.S. and quantity in Europe. In oilseeds, helpful demand amidst a smaller Argentinian soybean crop is countering the relative positive outlook for production in the Northern Hemisphere. Everywhere you look there is a battlefield of fundamentals that are raging.
Soybeans have touched two year highs, stirring the risk management minds of many U.S. farmers as they have sold double what they usually do for new crop at this time of year (not necessarily rocket science to lock in profits in tight margin years when values are up more than 25 per cent since the beginning of 2016. Despite the increased farmer selling, fresh money flows and bullish headlines continue to support the oilseed trade. Further, while we’ve seen some crop issues elsewhere, a lot of eyes are on North America’s crop, namely the U.S. corn and soybean production numbers and should there be any production issues, global carryout numbers could drop quickly.
With that, that weather premium is helping corn prices in Chicago, which are chasing highs not seen since last summer. Intuitively, this should support the prices of comparable feedstuffs like barley and wheat, but rains in key growing areas (including Western Canada) are keeping the mood of the parade a little more melancholy. University of Illinois ag economist, Darrel Good notes that, from a historical perspective, poorer weather tends to reduce yields more than really good weather helps.
The first crop rating from the United States Department of Agriculture (USDA) is showing 72 per cent of U.S. corn fields in good-to-excellent health though, it is too early to suggest a deviation (up or down) from the trendline yield of 168 bushels per acre currently being forecasted. If conditions remain benign, it would not be outlandish to think a record U.S. corn crop is possible, even with the likely acreage switch into more soybeans.
Speaking of records, while the European Union (E.U.) wheat crop is not looking as big as last year’s monster 160.1 million tonnes, things are still ok across the pond. Of note is that the French soft wheat crop rated good-to-excellent (G/E) has dropped from 92 per cent to 83 per cent in the last six weeks as enough rains plus warmer temperatures means disease and insect issues are playing a bigger role in the quality of the crop in France. Nonetheless, Mars, the E.U. crop monitoring agency pegged the average French wheat yield at 113.6 bushels an acre (-3.5 per cent year-over-year). While France’s will have its final say, the International Grains Council pegged total European wheat production at 153.6 million tonnes (including durum), nearly matching the European Commission current estimate of 153.9 million.
Here in Western Canada, we continue to see rains fall, even prompting some to ask Mother Nature to turn the tap off! There is enough of a moisture profile in the large majority of the Canadian Prairies to get the crop up out of the ground and going. Despite this, cash prices for the region have ticked up a bit in recent days, especially on new crop, thanks to futures prices improving week over week. In hard red spring wheat, futures gaining about 1.5 per cent for the week helped prop up cash prices by more than a nickel for $6.55/bushel average. Basis levels in canola widened a bit in the past week as futures have done a pretty decent job of tracking Chicago soybeans. Old crop prices fell on strong farmer selling but the soybean effect has been relatively mute on new crop, keeping values at an average of $11.23/bushel across the Prairies (heightened by some very strong deferred delivery pricing in the first few months of 2017). Yellow pea bids dropped sharply week-over-week thanks to good rains and the focus of bids turning strictly to new crop as other global suppliers battle it out for movement over the next three months before Canadian exports starts raging again.
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