Major pressure for ag commodity prices
Spring and early summer are traditionally volatile times for grains. Weather forecasts can swing markets wildly, and buyers and sellers alike are thinking about eventual production of crops. Throw in this year's wild global trade relationships led by the U.S. tariffs, and that makes for some wild swings (even in a generally well-supplied old crop situation).
This spring saw some price support due to dryness in the U.S. central Plains, weather issues in Russia and other top wheat growing countries, and uncertainty about corn and soybean output given lower acreage and weather unknowns. But this week, a confluence of events have pushed markets either to new contract lows or breaking through technical support (in the case of Chicago and Kansas City wheat markets).
First, weather has been improving over the last few weeks in the U.S. Yes, the winter wheat crop got hit with drought that will surely lower yields. But the spring wheat areas are looking good and corn and soybeans have had plenty of moisture. Additionally, trade disputes continue which provides an outlook for reduced demand. Look for prices to struggle to rally without a major shift in weather.
Wheat prices are falling on good weather, trade worries and falling corn prices. Minneapolis wheat resisted the pull higher from Chicago and Kansas City strength, but recent weakness in those markets has allowed Minneapolis to push through support to new lows. Conditions are very good in the northern Plains and prairies in Canada. The U.S. Department of Agriculture reported 70 percent of the spring wheat crop rated good to excellent. Also, in the monthly World Agriculture Supply and Demand Report, the U.S. stocks of all wheat grew. All of these factors set a bearish tone for the wheat market, but do not forget some key bullish factors.
Global exporters are having some weather issues: Russia and other parts of the former Soviet Union/Black Sea region, the European Union, and until recently, Australia. Also, the winter wheat crop in the U.S. is being harvested, and drought was a major issue this spring. Final yields may be lower than initially expected once harvest is done.
The durum market remains quiet, even with pressure from other wheat classes. Prices had resisted any major pull upward over the last few months, so the downside has not impacted durum either. The durum crop in North Dakota was rated 69 percent good to excellent, which is unchanged from a week ago.
Canola prices have bravely fought the downward pull from soybean oil. Weather has been good, trade worries are bearish, and rival soybean oil has been pushing to new lows, yet canola has resisted a major drop. One supportive factor is the weaker Canadian dollar, which makes canola more attractive. Additionally, the market is not yet willing to give up all of the premium with so much of the growing season left to go.
Finally, the European rapeseed crop is facing some weather issues, with the USDA cutting expected output to 21.8 million metric tons from 22.4 in a previous report.
Peas and lentils
Pulse crops have been helped by recent rains in the prairies. Soil moisture has been restored, and later planted crops are catching up with emergence. Saskatchewan reported 18 percent of the pulse crops lagging normal development, but most of the crop is in a good place.
The U.S. barley crop ratings improved to 83 percent good to excellent from an already impressive 79 percent rating. Just one percent of the crop is rated poor with no portion of the crop very poor. A year ago, just 72 percent was rated good to excellent, but this was before a lot of heat and dryness hit the northern Plains. The USDA's monthly supply and demand table showed no changes for the barley balance sheet.