NORTON: Crack in the weather rally

CRESTWOOD, Ky. - While growing conditions remain relatively hot and dry for much of the U.S. and parts of Canada, some key data shows the crop impact has not been overly negative. While areas in the Prairies and the Corn Belt need some rain, the market support has faltered as crop ratings generally are improving.
Wheat
Wheat markets came down last week, and spring wheat conditions continue to improve in the U.S. The U.S. Department of Agriculture reported 12 percent of the crop in excellent condition and 67 percent good compared to 12 and 68 percent last week, respectively.
Winter wheat harvest has been starting slow, with USDA showing 11 percent of the work complete, compared to 18 percent for the five- year average. But, the hot and dry weather last week allowed farmers to get work done, and Kansas and other winter wheat states are ramping up. Significant progress will be made in the next couple of weeks.
Durum
There are no significant changes in the durum market. Prices have been steady and there is not much excitement in this well-supplied market. North Dakota reported 78 percent of the crop was good to excellent, and growing conditions are favorable.
Canola
Canola prices are holding firm, of late. The weather has been mostly favorable, with timely rains in most growing areas. Conditions are good, and the tighter supply and strong demand is keeping the canola market from breaking as hard as some other oils.
There have been several questions in recent weeks that seem to be getting some bearish answers. The first is the impact of hot and dry weather on the early soybean crop in the U.S. The USDA weekly report on crop conditions showed an improvement to 74 percent good to excellent from 72 percent the previous week, and well above last year’s 67 percent. While soybean yields are made later in the summer, this does take some steam out of the recent rally.
Another big question for the soybean market pertained to the extent of the crop loss from flooding in Argentina (one of the top exporters of soybeans and soybean products).
Jesus Silveyra, undersecretary of Agriculture Markets for Argentina, stated this week that losses are in the 3.7- to 4-million-metric-ton range, with an additional 1 million metric ton seeing quality issues. While this is not insignificant, the market has speculated 4 to 9 million metric tons lost. So, 4 million metric tons is on the lower end of that range, and limits a further rally.
The last piece is the rising output of palm oil in Indonesia (the top producer in the world). El Nino dryness has been an issue for the past several months, but a seasonal increase in output combined with improving moisture has the industry expecting an increase in palm oil production in May’s data.
Peas and lentils
The global pulse crop will be the biggest in history. Total production has the potential to hit 80 million metric tons, given the increase in planted area. The higher prices this year are a result of the increase in overall consumption worldwide, but pulse consumption per person is still well below demand in the 1960s. Per-person availability during the 1960s was 12.93 kilograms, compared to 10.8 kilograms in the current year. This is largely from India’s effort in recent years to push pulses as a viable protein source in a country that has a large percentage of the population that does not eat meat.
Hitting on the aforementioned increase in pulse planted area, a debate is emerging among Canadian market participants regarding the actual area planted to lentils this spring. Some believe farmers did not seed more area to lentils than the intentions reported in the spring while others expect a minimum of six million acres. But, in the past five years the actual planted area for lentils has exceeded the spring intentions by an average 20 percent.
Mustard
Export movement has been slowed by tight stock availability for shipment. The Canadian Grain Commission showed movement through the end of April at 88,310 metric tons, which is 6.2 percent below a year ago.
Barley
Much of the recent concern for crop issues from heat and dryness was shown to be overdone in the most recent USDA Crop Progress and Conditions report. Just 1 percent of the crop is rated poor and none of the crop is very poor. Seventy-eight percent of the crop was pegged as good to excellent. Growing conditions are expected to be favorable in the coming week.