A Grain War
Grain markets entered the month of June with weather premium waning a bit before we saw some below-expected crop ratings out from the U.S.D.A. add some bullishness back in the market. The U.S.D.A.’s crop progress report showed us that just 65% of the U.S. corn crop is rated in good-to-excellent (G/E) condition, below the 70% the market was expecting, 72% G/E last year, and the lowest since 2013. This can be considered bullish, as could the recent wheat conditions. U.S. winter wheat G/E ratings dropped down to 50%, (well below last year’s 63% at this time of year), and U.S. spring wheat G/E ratings came in at 62% versus 79% a year ago. As such, concern of yield and quality potential is becoming a war between bears and bulls.
There are planting concerns in Western Canada but there is some continual progress that is keeping bullish challenges in check. Mainly this is because a fair amount of supply still in the pipeline though. Case in point, while we’ve seen a bit of strength in the cash feed barley market, there’s some that think that there isn’t actually a lot of poor quality cereals (including spring-combined stuff) in the pipeline. This is a wrong assessment though because otherwise we would’ve already seen more than the below-average increase in spring feed grain prices. However, this was not the case because if it was, we would’ve already had a lot more strength. If prices do rise, it will be driven by production concerns in 3Q2017 (July, August, & September), not the current pipeline of supply.
That being said, Plant 2017 has progressed rather quickly in a lot of places, getting things caught to the 5-year average in Manitoba, slightly behind the usual pace in Saskatchewan, and a bit further back in Alberta. From a price perspective, the accelerated pace of planting has pushed cash canola prices down across Western Canada to low $11 CAD / bushel for spot movement and barely staying in double digits across the Prairies for fall delivery. Yellow peas and green prices are still hugging those $8 CAD / bushel handles for new crop but lentil prices are pulling back a bit. As for wheat, durum values have improved a bit, but are still sitting below $7 CAD / bushel for movement before the end of 2017 in most places (clearly, this doesn’t include “specials”). Conversely, hard red spring wheat values have some good strength, moving up to about $6.75 for spot movement in Western Canada and a bit higher for new crop / fall delivery. This has been mainly due to the North American wheat futures markets pricing in some quality concerns for the U.S. winter wheat crop.
AccuWeather says though that there’s some hot & dry weather developing across Poland, Ukraine, Belarus, and other Baltic State, which is something we’ll have to keep a close eye on, given that especially Ukraine is the world’s #4 exporter of corn and #6 exporter of wheat! It’s also worth noting that UkrAgroConsult is timestamping a 60% increase in rapeseed exports, thanks to a 70% increase in production this year. Next door in Russia, according to IKAR, wheat exports are now sitting at 25.3M tonnes for the 2016/17 marketing year, which is a new record, but is expected to be broken by 2017/18’s forecast from the U.S.D.A. of 28 million tonnes. With European exports still finding it tough to be competitive after a smaller year of production, it seems to be that the title for top wheat exporter next week will be battled out between Russia & America (ironic given some of the geopolitical risk). Perhaps we can call this battle the Cold Wheat War.
President & CEO | FarmLead.com