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Erin Brown / Grand Vale Creative

Policy overshadows traditional fundamentals

On Tuesday, the U.S. Department of Agriculture released its monthly supply and demand estimates in the World Agriculture Supply and Demand Estimates (WASDE) Report. Usually, the contents of this report drives prices at least for that day, with changes made to commodity balance sheets that shape the way the markets react. This month, few changes were made to most of the U.S. balance sheets, so reaction may have been somewhat subdued regardless of what is happening in the political world. But given all that is going on with trade relationships as well as the farm bill, markets are more concerned with the policy side at this time.

Recall that coming out of the G20 summit in Buenos Aires, traders were confused about what the agreement was between the U.S. and Chinese leaders on tariffs and mounting trade restrictions. Both sides seemed to report a good meeting, but the details were not clear. By the middle of this week, it appeared that some of the details were getting clarified. President Trump then stated that the Chinese were buying U.S. soybeans for the first time since July's tariff implementation. This did not hit the news until the following day, when 1.5 million metric tons were sold to China. But even then, the market was skeptical and the soybean complex actually fell that day! Add on the farm bill that had been held up by issues with food aid, and farmers have lot of non-traditional drivers (like supply and feed demand) to worry about.

Wheat

Wheat prices have been supported this week on an expectation of greater export demand coming to the U.S. and Canada. In the WASDE report, the domestic balance sheet saw slightly larger ending stocks for the 2018/19 crop year compared to the November report on decreased wheat export demand. This took stocks to 974 million bushels (up 25 million bushels from the previous report). This is a bit of a surprise given the recent export picture. All fall, sales had been slow and the U.S. Department of Agriculture had been wary of lowering that export estimate for the crop year. Then sales start to pick up in late November and early December, with dwindling exportable supplies from Russia and Australia on top of a conflict in Ukraine, and the U.S. Department of Agriculture actually drops their export estimate. Confusing to say the least. But market sentiment seems to show that Canada and the U.S. will be picking up some export business in early 2019 as Russia and Ukraine cut back on supplying the world with wheat.

Durum

Durum prices have maintained their low value for several weeks with limited demand interest to provide support. In the WASDE Report, the U.S. Department of Agriculture increased domestic ending stocks by a million bushels from the November report.

Canola

The canola market had been firming up with the soybean oil market until this week's sale of U.S. soybeans to China took the legs out from the canola market. Prices are off the lows, but the potential for loss of demand for canola due to renewed interest in soybean products points to weaker prices for canola. The trade negotiations are ongoing between the U.S. and China, and resolution is far from certain. But look for prices to follow those trade talks closely in the months ahead.

Peas and lentils

Canadian supplies of lentils are down from a year ago, and prices are finding support from this data. The Statistics Canada report last week showed a 17 percent decline in output. Exports have been slower, but the smaller supplies have lifted markets.

Barley

Ending stocks of U.S. barely were reduced by 5 million bushels in this month's WASDE Report. The USDA reduced imports by that amount, leading to a reduction in supply. No change was made to the demand side of the barley balance sheet from the U.S. Department of Agriculture.

Mustard seed

Canada's mustard seed output for 2018 took a big jump higher in the most recent data from Statistics Canada. Harvest was estimated to total 173.7 thousand metric tons. This is 43 percent above a year ago on increased yield and planted area.