Winds, Sails, Suns, and Anchors
Grains passed through the first week of June with a little more volatility thanks to updated weather reports and fresh fund activity. Also, a weaker United States (U.S.) dollar helped support commodities as a weak U.S. jobs report at the start of the month made it tougher for the U.S. Federal Reserve to increase interest rates this summer (does not necessarily suggest a sound/strong U.S. economy just yet). A weaker U.S. Greenback means other currencies improve against it, which is why canola is not catching the same wind in its sails as soybeans/soymeal with a higher Canadian dollar acting as an anchor.
Recent rains across Western Canada are getting crops out of the ground, but low-lying areas are in tough in terms of emergence with additional water accumulating in them. Specifically for pulses, those fringe acres that are contributing to the large increase in planted area in Western Canada will more than make up for any lost yield potential. Accordingly, this continues to lay in line with our call here at FarmLead that we made this past spring that the best prices are behind us. Sure, these are obviously early estimates but given the increase of acres everywhere and a decent start to the growing season, our focus turns to what sort of monsoon rains in India will materialize.
Rains in France have led to more firms and producer organizations dropping their production estimates for the European wheat crop, albeit still looking like a 150 million-tonne crop today. This is supporting wheat prices a bit but more than anything, the cereal is following corn and soybeans higher on the futures board. From a cash perspective though in Western Canada, pdqinfo.ca indicates a strong week for hard red spring wheat futures in Minneapolis (+5 per cent week-over-week) was offset by basis widening by about 15 cents a bushel. Conversely, canola’s follow-the-leader strategy of soybeans helped the oilseed gain almost 15 cents a bushel from last week. In other grains, new crop prices for durum and yellow peas are both lower week-over-week.
Prices in the corn and soybean markets continue to drive the overall grains complex, with hedge funds holding their longest positions in the ag commodities in the last two years. Looking back at a year ago when North American crops were in a similar situation as they are now, and before some dry weather in June, corn touched multi-year highs of nearly $4.70 bushel in the second week of July. In the oilseeds, soybeans peaked at around $10.50 a bushel the last week of June, followed closely by canola touching $550 per metric tonne briefly in early July. Just as you check over your boat before putting it in the water this summer, we need to ask questions on both sides of the bull/bear storm. As such, with funds accounting for as much as an estimated 30-50 per cent of the rally the last two months, it looks like a cold wall of water is in the distance, but its arrival seems to be a couple weeks from reaching our grain marketing boat.
President & CEO | FarmLead.com