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House passes farm bill; legislation now goes to president's desk

opinion

Erin Brown / Grand Vale Creative

U.S. Department of Agriculture cuts world wheat

Each month, the U.S. Department of Agriculture releases updated supply and demand estimates for major crops. The crops in the U.S. are often the primary focus of the report, with the market's reaction tracking with the domestic story.

In the July report (that was released on July 12), the U.S. wheat balance sheet saw increases in ending stocks. Old crop stocks increased by 20 million bushels from the June report, and new crop stocks were up 39 million bushels. Yields and total area were adjusted higher, allowing for increased production in the 2018-19 crop year. So why would wheat markets rally if the U.S. wheat crop situation improved so dramatically?

The answer lies in the USDA's outlook for wheat crops in other top producing nations. For the 2018-19 crop year, Russia's wheat production fell 1.5 million metric tons to 67, Australia fell two to 22, Ukraine fell one to 25.5, the European Union fell 4.4 to 145, and China fell one to 128. So the 1.5 million metric ton increase in output from the U.S. does not even come close to offsetting the losses in these other top producers.

The market was not surprised by these output reductions given recent reports and weather maps from around the world, but the confirmation of bullish bias did allow for prices to rally following the July 12 report release. The global wheat supply situation remains comfortable, but declines in output do begin to tighten things up. This will limit major significant downside for prices, even in the U.S. where supplies are swelling.

Wheat

The spring wheat futures market has remained depressed. The aforementioned report from the USDA provided some support late, but the market is hesitant to rally much from the lows given the good looking crop. Spring wheat crop ratings improved to a remarkable 80 percent good to excellent from an already impressive 77 percent rating a week ago. This is a huge improvement from last year's 35 percent good to excellent rating. Winter wheat harvest is progressing at a normal pace after a quick start: 63 percent of the crop is done compared to 61 percent for the five-year average pace. The story of wheat will be less about the U.S. and more about the supply situation in other exporting countries.

Durum

Minneapolis durum prices dropped a dime from a week ago after several weeks holding steady. The USDA showed new crop stocks of durum should hit 41 million bushels. This is an increase of 5 million bushels from the 2017-18 crop year. The North Dakota crop continues to see very good condition ratings: 81 percent of the crop is in good to excellent condition. Weather forecasts for most growing areas are showing hot weather ahead, but some rains to alleviate any fears of major crop damage.

Canola

Canola prices have finally succumbed to pressure from the soybean oil market. As covered last week, the canola market was being held up by expectations of increased global demand as the trade war with the U.S. and other trading partners would shift demand to Canada's canola supply. Also, planted area in Canada was not as much as had been expected. But the potential lack of demand from the U.S. due to direct trade issues and improved growing weather in the Prairies finally pulled canola futures lower.

Peas and lentils

Pulse crops in Saskatchewan are in good shape from a moisture perspective after a week of storms. Some wind and hail issues are evident, but rains helped get dry areas the moisture that was needed. There had been some worries that the hot and dry weather a week ago would become an issue for crop development, but these weather events seem to have done the trick.

Mustard

Mustard seed markets have been steady with light trade. Trade data from the Canadian government shows that trade has been slow, with shipments down 9 percent from a year ago.

Barley

The U.S. barley market got hit with a bearish bomb from the USDA report. Old crop ending stocks were increased by 30 million bushels! This spilled over into the 2018-19 crop year, and an increase in expected output of 8 million bushels resulted in a swelling of stocks to 94 million bushels from 47 million in the June report. This production increase is not unexpected given the good crop conditions: 85 percent of the U.S. crop is rated good to excellent.