Grain markets started the month of May on a bit of a hot streak as some wintery and watery weather hit main growing regions in the Midwest. Notably, the wheat market jumped higher on both Monday and Tuesday before traders bought the rumour and sold the fact of what damage was really out there. The Eastern Cornbelt was ahead of its normal planting pace, so the rain this past week could potentially help the recently seeded fields, although given the amount of precipitation that has fallen already, there’s definitely a higher risk of flooding in some areas. That will intuitively mean replanting on more than a few fields, setting back those % planted numbers back a bit. Conversely, some drier weather in the western half of the Midwest could help get those states back on track in terms of progress in the field. The U.S. long-range forecast from the Climate Prediction Centre is showing mostly drier weather for the next weeks but average weather through the rest of the summer. Meanwhile, AccuWeather is calling for a relatively normal May and June in Western Canada but some drier weather from northwestern Alberta down to southeastern Saskatchewan in July and August. Weather in South American is non-threatening right now, we continue to watch precipitation needs in Western Europe, while conditions are fairly benign in the Black Sea.
The Wheat Quality Council annual crop through Kansas wrapped up on Thursday, May 4th, pegging final yield estimates at 46.1 bu/ac across 469 stops, suggesting a total production forecast of 282 million bushels, a figure that includes 20% crop abandonment. This would be a 40% decline or about 185 million bushels less than what was produced a year ago. Given the snowfall and frost conditions that have hit the region a few times leading up to the crop tour, there are many out there who are skeptical of even this number. An interesting point though is that last year’s wheat tour said the crop was going to come off at 48.6 bu/ac and the final state average ended up being 57 bu/ac. Not all fields got measured this year because of snow-cover, and therefore many are feeling that the market isn’t accounting this. The truth though is the market is already accounting for that lower harvested acreage number because yield numbers are one thing, total production is another.
On Friday, May 5th, Statistics Canada came out with what they think Canadian grain stocks were at the end of March 2017. Total wheat stocks were pegged at 15% higher than last March, at 16.6 million tonnes, but that’s actually 1% lower than the 5-year average. There’s still a lot off durum out there according to the StatsCan survey though, saying 4.08 million tonnes are still in the market, which would be a 51% (or double) last March’s supply and 33% than the 5-year average. On canola, available inventories are 23% last year but just 9% below the 5-year average at 6.57 million tonnes. Confirming of the bearish pulse crops pressures is lentils stocks sitting 93% higher than what they were a year ago but also just 9% below the average at 1.07 million tonnes. Peas stocks of 1.7 million tonnes is 26% above last year’s available supplies as of March 31st, 2016, and 21% above the 5-year average. Rounding it out (and compared to last year and the 5-year average), 4.58 million tonnes of barley is more than the market was expecting (+23%, +25%), as were oats inventories of 1.66 million tonnes (-8%, -6%). Rye supplies remain quite large at 198,000 tonnes (+100%, +97%), corn supplies are pegged 6.57 million (-23%, -9%), soybeans at 1.86 million (-4%, +5%), and flax at 404,000 MT (-23%, -9%).
How has the market created to all this action? When it comes to cash grain prices in Western Canada, it could be argued that the Canadian Dollar has had the most impact, dropping below 73 cents earlier in the week, and giving a bit of a bump to final cash values. As per the grain pricing website PDQ, canola lost some of its lustre throughout the week but got a bit of back, albeit slowed by the Loonie closing back above 73 cents. It ended the first few days of May up 1% on the futures board front month contracts (new crop contracts were less volatile) while cash prices for spot movement continue to hover above $11.50 CAD per bushel. For hard red spring wheat, we’ve seen spot movement continue to move higher to back above $6.50 CAD per bushel across Western Canada and nearly $7 in some places. Overall, the amount of corn, soybeans, and wheat that’s still available for sale will likely limit the ability for rallies to run longer as farmer selling is more likely to stall both basis and general price improvements. Given the busy time of year when air drills and planters can run 24-7, these moves to the upside cannot be taken gently and so having your price orders / targets in place is something that should be done today.
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