Market throws off traditional domestic drivers
During this time of year, the agriculture markets usually are focused on a few key drivers. Weather in the Corn Belt and Plains is the main piece. Results of harvest of the U.S. winter wheat crop is another. But this summer has seen an emphasis placed on other key factors.
Trade has been discussed at length, with tariffs and trade war rumblings dominating the mainstream news cycle and not just the commodity market wires. Global grain production is also moving the market's attention away from generally good growing conditions in North America (with obvious exceptions in parts of the Plains and Canadian Prairies).
This week saw both a 12 billion dollar aid package for U.S. farmers impacted by retaliatory tariffs and an agreement between the European Union and U.S. to back off trade restrictions. Quite frankly, the agriculture commodity markets did not know how to handle it. The soybean complex rose drastically on the expectation of increased soybean exports to the European Union, despite the fact that European demand does not even come close to making up for potential U.S. trade losses from China. The 12 billion dollar aid package for farmers did not have any significant impact either, and only signaled to the market that the U.S. Administration is set to continue its trade negotiations moving forward.
The other key driver of commodity prices this week came from lowered output expectations for wheat across the globe. Russia and Ukraine have been dealing with drought. Australia's production outlook is dropping. And, most critically, the European Union production forecast keeps dropping as drought has ravaged wheat crops in many areas.
Wheat markets have firmed up considerably. The primary driver of market strength has been the forecast for lower output abroad. France is the top producer in the European Union, and spring rains and cold temperatures have cut yields. Germany and other northern parts of Europe have been hit with drought which is lowering production as harvest efforts get under way. Many private analyst groups have released forecasts for lower wheat production. The International Grains Commission took down global wheat production by 16 million metric tons from a year ago, to 721 million metric tons. This would be the lowest output since 2013-14. The large stockpiles from the 2017-18 crop will soften the blow of this production cut (from a supply perspective). In the U.S., winter wheat harvest is nearly done at 80 percent completion. Spring wheat conditions fell to 79 percent good to excellent from 80 percent a week ago.
Durum prices ticked lower this week. The crop is facing some pockets of dry weather, but rains are expected to hit in some areas in the coming weeks. If realized, this would benefit the dry crops and boost production outlook.
Canola markets have stayed steady. The first ever Grain World crop tour pegged the Canadian yield at 41.9 bushels per acre, up from last year's 41.1. Some are expecting yields to go even higher than that mark. Production should be close to last year if that is the case, leading to growing carryout of canola. The biggest question revolves around exports: what will the trade landscape look like with the U.S. and China in the year ahead?
Peas and lentils
Pulse markets have been weakened by outlook for lower export demand. Even with some weather factors lowering production expectations in Canada, available supplies are expected to swell as India's demand continues to fall.
Mustard seed markets have been steady. There are some mounting concerns about the size of the upcoming Canadian crop. Recent reports are showing that production may fall below previous years as yields could fall 10 percent or more from the recent average. This would be supportive to prices in the fall, if realized.
The U.S. barley crop saw a small drop in conditions. Eighty-one percent of the crop is rated good to excellent compared to 85 percent a week ago. Overall, the crop is in very good shape, but pockets of dryness are stressing the plants and have lowered ratings.