No holiday week for agriculture markets
Despite Independence Day in the U.S. closing markets on Wednesday, the impact of the weather, trade outlook, and the government reports on acreage in the U.S. and Canada have given enough fodder to keep agricultural commodity markets on edge.
First off, weather in the North America is hotter than usual, raising some concerns for crops in the long term outlook. Plenty of rain has fallen in the past few weeks (except for the U.S. Central Plains that remain in a severe drought), so crops are thriving despite the heat.
From a trade perspective, things look bearish for U.S. commodities as the first tariffs on Chinese goods went into place on Friday. While these targeted tariffs have been in the works for months, the actual commencement of the tariffs is confirmation that the U.S. is marching towards a trade war that will likely hit farmers. President Donald Trump has assured the farming community that protections will be put in place for farmers against weaker demand and lower incomes, but the means to accomplish that goal are not clear.
Finally, last week's acreage report was critical for setting the stage for total production outlook. Wheat areas are up, pressuring spring markets. Look for ongoing volatility, with weather and trade policy driving prices into the fall.
Spring wheat prices pushed to new lows and have consolidated at that level. Chicago and Kansas City contracts are off recent lows, but major upside is limited. In the U.S., the spring wheat crop ratings held at 77 percent good to excellent. Winter wheat harvest is half done at 51 percent completion, just above the 49 percent pace for the five-year average. Global outlook for wheat is not great, with weather problems in parts of Europe and the Black Sea region reducing production outlook.
Minneapolis durum prices were steady this week. North Dakota crop ratings continue to impress, with 76 percent rated good to excellent and just 2 percent of the crop rated poor to very poor.
Canola markets are in a bit of a predicament. Old crop stocks are large, which is generally bearish. Prices have maintained a premium over the falling soybean oil market over the last few months on expectations of good demand and potential drawdowns in stocks in the coming crop year. The newly planted crop is in good shape to date, but there is a growing need for rain as temperatures climb. Market perspective is beginning to shift on a forecast for another good crop building stocks further. Therefore, the trade piece is the critical price driver. On the bulls' side, trade disruptions between the U.S. and China provide a window for canola to fill an oilseed trade gap to the world's second largest economy. But for the bears, the U.S. is Canada's top buyer of canola currently, and there is a growing trade spat in that relationship that could reduce demand. What has hurt in the short term is the fact that canola has kept a premium to soybean oil, resulting in lackluster demand for canola on the global market due to higher costs.
Peas and lentils
Pulse crops in Saskatchewan are flowering during a hot spell. Rains have built up soil moisture reserves, but more is needed to prevent yield loss. In India, government support prices were increased for pulses, further backing the local farmer and decreasing potential demand for exports.
Last week's report on planted area from Statistics Canada put total mustard seed acreage at 503,800. This was greater than last year's 385,000 acres, and significantly higher than spring intentions. U.S. farmers cut area modestly, but the overall production from the combined countries could exceed last year, especially since weather has been much better than a year ago in the production areas. As a result of the acreage reports and weather outlook, mustard seed price outlook remains somewhat bearish.
U.S. barley crop ratings improved from a week ago. The U.S. Department of Agriculture showed 84 percent of the crop rated good to excellent compared to 83 percent a week ago and 52 percent last year. Fifty percent of the crop is headed, which is in line with the five-year average pace.