Despite not having a confirmed Secretary of Agriculture, the annual Agricultural Outlook Forum took place last week in the U.S. Capitol. The market's main focus was the U.S. Department of Agriculture's forecasts for major crops for the 2017-18 crop year. All of their estimates were based on statistics and trends, not any surveys of farmers or weather-based yield forecasts. Still, these data points are watched closely by traders and set the tone for the market as spring approaches.
The USDA data showed what many expected in terms of major crop acreage. Wheat and corn planted area are expected to drop by roughly 4 million acres each. Soybeans have an economic advantage to these crops, and so soybean planted area is expected to rise 4.6 million acres. All of the yield models show "adjusted trend" estimates, which are slightly higher than a standard 30-year trend. As a result, all of these crops retain high ending stock levels (even with lower acreage for corn and soybeans). But, this will require a cooperative summer in terms of weather.
Wheat
Wheat markets are in weather-watching mode. The recent declines prompted some buyers stepping in to take advantage of some downside. But the major issue is the ongoing dryness in the Plains. Moisture has been an issue for several months, and the market has sat by for some time resting on large stockpiles of wheat in the U.S. and Canada. However, the winter wheat crop is soon exiting dormancy, and forecasts continue to show dry and warm weather. Rain is needed, even with some recent showers providing relief in pockets.
Durum
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Durum prices have maintained a quiet tone this week. Some light trade activity with Algeria and Italy was not enough to boost the market.
Canola
The biggest story for vegetable oils is the expected deal proposed by the energy industry to the Trump administration. In this deal you have parties: one that wants to have improved demand for biofuels (which keeps support for agricultural products like corn and soybean oil) and one that wants looser regulations to get more demand for traditional fuels.
In this case, the side proposing the legislation represent the latter. Carl Icahn and the Valero Energy (and other groups) are pushing this deal and the biodiesel/ethanol groups are taking it, but it likely is not in their favor long-term. The deal does two things. First, it pushes responsibility for the inclusion of biofuels under the Renewable Fuels Standard away from producers and to blenders. The problem with this for the farmer and biofuel industry is that this takes the compliance one step further away from the source. At the blender level (versus the producer level) the likelihood of compliance with the RFS is reduced, which could lead to less soybean oil, corn and other agricultural products in fuels. The blenders would likely be able to import more, take advantage of RINs, and avoid closer scrutiny. But why did the ethanol/biodiesel groups agree?
That is the second point: the deal allows for year-round sales of E15, which could give a boost to ethanol and biodiesel demand. But this could be for only a short time. Long term, one would anticipate a drop in feedstock demand for biodiesel and ethanol, creating more supply and pressuring prices. Fats markets were up big following the announcement, but a lot of that activity was some bargain buyers stepping in with potentially bullish news, not a true fundamental shift. There are still a lot of unknowns at this point.
For canola specifically, prices have been following soybean oil. Fundamentals are strong, with the Canadian Oilseed Processors Association reporting weekly crushing at 201,400 metric tons. This brings the year to date crush to 5.26 million metric tons, up 640,000 metric tons from a year ago. But until crop planting can provide unique direction for the canola market, look for the pressure from palm oil and this developing story on oils (as well as South American export pace of soybeans) to be the main drivers.
Peas & Lentils
Last week the pulse market was asking a lot of questions about the future trade relationship with India (the top world importer). The Indian government move to not extend the ethyl bromide exemption past March 31 left Canadian exporters in a tough place with a potential loss of a major trade partner. It is now becoming clear that India intends to be self-sufficient in pulses. A five-year plan has been announced where the government wants domestic pulse production to hit 24 million metric tons by 2020-21, when dietary needs will require 23.7 million to 27.1 million metric tons of pulses. Prices have been falling as a result of this likely loss of demand.
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Mustard
Little has changed in the mustard seed outlook from Agriculture Canada. The production forecast is 155,000 metric tons on 160,000 hectares, compared to 234,000 metric tons on 212,000 hectares. Ending stocks for new crop should remain large, however, at 70,000 metric tons.
