Markets after-the-weather influence fades
So much of the last four months have seen the markets focused intently on weather. Forecasts and actual weather events drive prices as production of crops is clearly impacted by rain and temperatures. Starting in the spring when farmers are planting or winter crops are coming out of dormancy, the madness begins.
Through planting season and into early crop development, each week sees ups or downs based on the uncontrollable weather. Through the summer, markets witnessed plenty of strength as heat and dryness in the U.S.'s Northern Plains and Canada's Southern Prairies stressed crops.
In the last month, weather for much of the growing areas improved, providing price pressure.
But now what happens? Harvest of many of crops is done or nearing completion. Other major crops like soybeans and corn still have some time before harvest, but the critical "yield making" weather window has passed. To be clear, adverse weather in the next month or two can impact production negatively.
Canola faced this last year, when the last 20 percent of the crop was left in the field for an extra month due to extreme rain followed by early cold. However, there is not much that can be done to improve yields for most crops at this point. So market direction will begin to come more from actual harvest reports and eventually demand drivers. This transition takes time, but look for stories of exports, feed usage and biodiesel policy to begin to get more of the spotlight in the months ahead.
Overall pressure for wheat has calmed. The last two months have been very bearish as weather improved and global wheat supplies overtook the Plains/Prairies drought as the main driver. But in the last week prices have leveled out as major further downside just was not possible and other commodities (such as corn and soybeans) leveled out. Spring wheat harvest in the U.S. continues to progress ahead of the normal pace. Seventy-six percent of the crop is done compared to 66 percent for the five-year average.
Prices have not changed much in the last week for durum wheat. The market is off the highs as overall price pressure for all wheat varieties has spilled to durum. In North Dakota, 38 percent of the crop has been harvested, but of the remaining crop just 10 percent is rated good and zero percent is rated excellent. The devastation of the earlier drought conditions are clear in the Northern Plains.
Canola futures have been mixed, tracking the volatility in the soybean oil market in Chicago. Soybean crop conditions in the U.S. improved from a week ago (which is rarely seen in August). The crop was rated 61 percent good to excellent compared to 60 percent last week.
The bigger story was the Statistics Canada report that showed an expected output for 2017 at 18.2 million metric tons which was well below the 22-million-metric-ton trade estimate for the report. But the market did not respond with a huge rally as the 2016 crop was revised higher by 1.2 million metric tons. This added carry-in helps offset some of the bullish sentiment and alleviates stocks pressure heading into the harvest of the new crop.
Peas & Lentils
According to Statistics Canada, the initial production estimate for the 2017 crop showed lower output in the Southern Prairies. This was expected given the heat and dryness in June and July. Output for pulses (including peas, lentils, chickpeas and dry edible beans) is expected to fall to 6.485 million metric tons compared to a remarkable 8.427 million metric tons a year ago.
Peas and lentils, specifically, are expected to fall roughly 1 million metric tons to 3.79 and 2.29 million metric tons, respectively. This data is derived from a farmer survey that took place from July 19 to Aug. 1 and covers over 13,000 farms.
Agriculture Canada updated its monthly estimates for the new crop (2017-18 crop year) mustard seed production. The government's forecast is for 145,000 metric tons to be produced from 154,000 hectares versus 234,000 metric tons a year ago on 212,000 hectares. Exports are set to rise 8,000 metric tons to 125,000. Note that these forecasts are based on economic models and forecasts but not on farmer surveys.
Barley harvest is in its final weeks. The U.S. Department of Agriculture reported 83 percent completion from 70 percent last week versus 73 percent for the five-year average.