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Published July 15, 2013, 10:21 AM

Markets bottom?

Markets are realizing that the crops are three weeks late and there’s still a summer of potential stress ahead.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — During the week ending July 5, the consensus was that crops across North America were well-watered and roaring ahead. Corn futures seemed headed for $4 or maybe $3.

Now markets are realizing that the crops are three weeks late and there’s still a summer of potential stress ahead. Corn rose 10 cents per bushel July 8 and another 20 cents July 9, basically on no news.

Larger production potential

Canola prices came under pressure the week ending July 5, as favorable crop conditions continue to set a negative tone. Producer selling has increased for harvest delivery, now that most farmers are content with their own production potential. At the same time, the inverse between old and new crop prices has encouraged farmers to clean out old crop stocks.

Most crushers are planning to take some downtime for maintenance and upgrades in the next month, which will lower domestic demand. Exports are also projected to slow in July and August, as major importers await new crop supplies.

The 15-day forecast calls for normal to above normal temperatures and limited precipitation. Therefore, the canola market may incorporate a risk premium as a result of the uncertainty in production. We think this “heat wave rally” will be short-lived and we will be watching for an opportunity to increase our new crop sales recommendation to 40 percent.

The industry is factoring in above-average yields given the current conditions and we expect basis levels to sharply deteriorate during harvest. We want to jump ahead of this selling pressure at harvest so this is another reason to sell earlier, rather than later.

The U.S. soybean crop is also developing under favorable conditions and world vegetable oil values continue to grind lower. The oilseed complex has a bearish sentiment heading into the harvest period.

Feed barley prices soften

Old crop feed barley prices continue to deteriorate from seasonal low feedlot inventories. Barley in the Lethbridge, Alberta, area traded in the range of $275 to $278 delivered feedlot the week ending July 5, which is down from the yearly highs of $299 earlier in May. Producer selling for old and new crop has increased, given the favorable crop conditions and weakness in U.S. corn values. New crop feed barley prices are trading at $220 per metric ton delivered Southern Alberta feedlot. Feedlot managers are showing limited buying enthusiasm for September and October, given the potential weakness in corn.

World barley prices also have declined with Black Sea barley trading at USD $245 per metric ton freight on board. Ukraine and Russia are in the early stages of harvest, which is weighing on the world barley market. We see limited export movement for Canadian feed barley during the harvest, given the strong competition.

Milling wheat prices grind lower

Above-average yields are forecast for Western Canada and Northern U.S. Plains hard red spring wheat. Basis levels for new crop delivery are deteriorating, given the potential for larger supplies coming on stream during harvest. Keep in mind the U.S. farmer sells half of their wheat crop at harvest; the Russian and Ukraine harvests are well underway and European supplies also will be coming on the market in the next month.

Editor's Note: Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671.