Weather, Washington Weigh On Wheat

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended July 24 lower, with canola pushed to its lowest level since March on the improved crop condition and the amazing rally in the Canadian dollar. Weakness in Chicago soyoil contributed to the declines, as did the lack of any non-routine export buying. Routine exporter and crusher buying met both speculative and commercial selling. Crushers were also sellers as crush margins deteriorated. There was also selling out of Europe as they hedge their new crop. Speculative selling was steady, but light. Western barley posted moderate losses as the market focused on the lack of end-user demand, the improved crop, and weakness in U. S. corn.

Chicago corn and soybeans saw modest losses on the week as favourable growing conditions in the Midwest pressured

values down. Bearish technical signals also weighed on prices for both corn and soybeans. However, for both corn and soybeans, demand remained strong with export demand higher than traders expected. A weak U. S. dollar also gave support, as did news that the U. S. government was going to resurvey corn growers about their corn acreage.

U. S. wheat futures saw moderate losses in all three markets as sluggish export demand and favourable growing conditions for the spring wheat crop weighed on values. Egypt’s unexpected purchase of Russian wheat rather than U. S. wheat pressured prices down. Egypt had been complaining about the Russian wheat quality, which prompted traders to expect Egypt would avoid Russian wheat. Revisions higher in the size of the Australian wheat crop also weighed on markets.

USDA RECHECKING CORN

The biggest piece of news last week was the U. S. Department of Agriculture indicating it will resurvey U. S. farmers in the corn belt, to see if acreage differs from its June 30 forecast that raised U. S. corn acres sharply.

The original survey was done early in June and the trade feels that the cool, wet conditions of June cut corn acres sharply. Most analysts are looking for the resurvey to cut acres, but the estimate range is wide. The feeling is that they could be lowered from 250,000 to 1.5 million acres with the bulk of the trade looking for it to be lowered about one million acres. However, there are a significant number of traders who feel there will be little change to the number. USDA will have the new number in its Aug. 12 supply/demand report.

Another question that will have to be addressed is this: Where did those corn acres go? If corn area falls by a million acres, as expected, did they go into soybeans?

Another U. S. government move in the past week had significant impact on wheat prices. The Commodity Futures Trading Commission (CFTC) is unhappy with the inability of U. S. cash and futures wheat prices to converge as they should when the futures contract becomes the cash month.

The situation is blamed on index funds that trade wheat (and they are also in the canola

market). Their position is always long the market, which critics say artificially inflates futures prices. Because these funds use grain futures to protect or hedge their positions in commodity indices, which they also trade, they have been given special margins and position limits that are only available to hedgers, such as grain companies. As a result, their market position is a hedge of an index and not of the price of wheat, which in turn impedes the convergence between wheat cash and wheat futures prices.

The CFTC proposes smaller position limits for index funds, which helped to deflate the wheat markets this past week. While this will cause some initial volatility in the wheat market, it will eventually be good for the market.

WEATHER OR NOT

Another big factor in the markets both in the U. S. and Canada this past week was weather.

In the U. S., the Midwest has experienced cool and wet conditions which have been very good for crop development, but are making the crop quite late. It is causing corn traders to talk about record yields for the U. S. corn crop and that drove corn prices close to the US$3-per-bushel level, before USDA announced it would resurvey corn growers about their planting.

Analysts say that even if corn plantings are down one million acres, higher yields will offset the lower acres. This will have to be watched.

The U. S. corn crop is running several weeks behind normal development, which means it may be vulnerable to even a normal frost. The latest long-term forecasts for the U. S. Midwest call for below-normal temperatures into September, which means the market will be on pins and needles until we see the crop mature.

The situation is the same for soybeans, which have seen good weather so far, but the crucial time for soybeans is coming up in August and we will have to wait and assess the crop after podding.

The soybean crop is also well behind normal and will be vulnerable to frost. Also, without heat units, what happens to yields?

In Canada, traders are talking about canola yields improving significantly due to rains in Alberta and Saskatchewan and drier conditions in Manitoba. The cool conditions are felt to be ideal for the crop. One Manitoba farmer was telling me that what he lost in acres to excess moisture was being balanced off by what looked like very strong canola yields.

While Manitoba and Saskatchewan seem to be adequate, moisture-wise, Alberta is back to needing moisture. This will have to be watched.

BARLEY SANDWICHED

Farmers were wondering why the small barley crop in Western Canada was not translating into really strong prices. Some say the barley crop might be one of the smallest on record. However, offsetting the smaller crop are imports from the U. S. of both corn and distillers dried grains, both with and without solubles. Alberta sources indicate that livestock feeders have already booked 1.5 million tonnes of DDGS. They can use up to 40 per cent in livestock rations and the price is getting cheaper as U. S. corn values fall.

Right now, U. S. ethanol producers are all making a profit and are producing ethanol at maximum capacity, which means that they have large amounts of DDGS for sale which can be sold at discounted prices. This has taken the edge off barley prices.

While it is disconcerting to see grain and oilseed prices fall, this is a normal seasonal development that starts in July, with prices not rebounding till harvest time.

– Don Bousquet is a well-known market analyst

and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.

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