WINNIPEG, Manitoba -- Ray Garnett, publisher of Agro-Climatic Consulting, reports a potential bumper crop on the prairies. Rainfall from May 2 through June 30 was 123 percent of normal. July has been is relatively cool. North of the Palliser Triangle has the best crops. Poor areas that saw too much rain are relatively small.
Canola prices trending lower
Favorable crop conditions across Western Canada continue to weigh on the canola market. Analysts have increased their Canadian canola production estimate to 14.6 million metric tons up from last year's 13.1 million. Given the record crop size, elevator companies and crushers are starting to anticipate large farmer deliveries during the fall period, which has caused basis levels to deteriorate.
Outside influences are weighing on the canola market. U.S. soybean crop conditions should meet the U.S. Department of Agriculture estimate of 3.4 billion bushels, compared with 3 billion bushels in 2012. Bean oil futures are trading at the lowest levels since the fall of 2010. World vegetable oil prices remain under pressure. Larger feedgrain and soybean production has new crop meal values easing, resulting in weaker crush margins.
Milling wheat prices adjust to larger wheat supplies
ADVERTISEMENT
Milling wheat prices are slowly grinding lower as the spring wheat harvest nears in the U.S. and Western Canada. The U.S. hard red winter wheat harvest is in the final stages, while Ukraine and Russian harvests are nearing the 50 percent complete mark. A fair amount of pressure is on world markets, with no problem areas occurring in the Northern Hemisphere crops, we anticipate further downside potential into September.
The feedgrain complex set the price floor for wheat during the 2012 to '13 crop year as the corn and barley markets functioned to ration demand.
Prices for barley in Western Canada were high enough to encourage milling wheat usage in feed rations. But in 2013 and 2014, the barley market is functioning to encourage demand through lower prices.
At this time, traders anticipate that 80 percent of the Canadian spring wheat crop will finish in the top two grade categories, while the recent heat has enhanced protein potential. It appears Canada and the U.S. will have another year of high-quality supplies, which means half of the crop will compete with mid-protein quality on the world market.
Basis levels for quality will ease into harvest.
Elevator space and fobbing capacity
Given the larger wheat and canola crops, elevator space during harvest will be precious, which will cause basis levels to deteriorate.
Fobbing capacity on the West Coast is basically booked up until mid-November. If you have not made forward contracts to deliver, opportunities to move supplies at harvest could be limited because the system will be running near capacity. If it rains in Vancouver for a long period of time, we could see a significant backlog in the country system.
ADVERTISEMENT
Problems with Chinese wheat
Reports out of China suggest that 20 million metric tons of wheat, 16 percent of the crop, is "unfit for human consumption" because of rains at harvest. China bought 300,000 metric tons of Australian wheat in June and another 600,000 the week of July 15. Traders expect 2 million to 3 million metric tons of total purchases.
Normal annual wheat imports are 750,000 metric tons.
Futures drop
Futures are slumping as crop development remains favorable across North America. American crop ratings are dropping a bit, but that's normal in July.
Funds are basically out of the long side of grain futures. Crop development is still behind normal but catching up.
Editor's Note: Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671.
