Grain markets this week all dived lower about 2-3% as weather/growing conditions have improved, slowing down the running of the grain bulls, especially since there aren’t any demand headlines for them to chase after. However, it’s been quite a run that these the complex has seen: Between abundant rains in the Midwest, dry weather in Western Canada & Europe, geopolitical risk in the EU with Greece, the Chinese stock market crashing, and the increased chatter around El Nino, there’s been a lot on the go! With this chatter starting to subside a bit though, the market can only turn its focus back on weather now. On that note, now that we’re into the second half of July, crop production potential is becoming clearer in the Northern Hemisphere. Nonetheless, the effects of all that rain in the Midwest in June is starting to show its face in the form of disease. Meanwhile, the dry weather in Western Canada remains notable despite rain finally falling in a few areas (albeit a few places are still missing their share of the wet stuff). We have heard of some very heavy rainfall in some areas (couple inches in an hour kind of stuff) but the fields are likely welcoming any sort of drink at this point (especially those on the western half of the Canadian Prairies).
Speaking of a crop’s thirst, yield numbers in Europe continue to push lower as the E.U. is feeling the heat (and I’m speaking about weather here, not because of the Greek debt bailout situation, although that still remains a headache). Strategie Grains cut their forecast for the European wheat crop for the second time in two months, a total downgrade of 1.8 mlllion tonnes to 140.9 million. Comparably, the E.U.’s farmer union, Copa-Cogeca, says yields are definitely down this year thanks to the volatile weather, limited access to efficient pesticides, and effects of the ban on neonicotinoid seed treatments. One of the crops to see the biggest declines is rapeseed production, likely down almost 11 per cent from last year’s massive 24.3 million-tonne crop. However, massive is the key word here – last year’s production in Europe was one of the biggest across the board and while this year’s crop may be “poor” relative to last year, it’s still decent compared to the average over the past few years.
Overall, the market will look for new headlines to chase prices higher on while most growers wait to crops to fill out & see what sort of real potential there is in the field. Barring another 4 weeks of monsoons in the Midwest & drought conditions in Western Canada, the argument can definitely be made that the crops most easily accessible (i.e, wheat, corn, soybeans, & even canola) could be near their highs for the next six months (now til the end of 2015). In reality, any one can argue that it’s going this way or that because there are a lot of factors at play. When it comes to cashflow though, volatility has hit the sidelines to catch its breath, giving you a chance to look at locking in profits on a few bins, considering that in the last 3 months, soybean prices are up 6.5%, corn up 7%, wheat up 11%, and canola up 22%.
Brennan Turner – President, FarmLead.com