With weather creating a fairly volatile trading in the grain markets, compounding the situation is economic uncertainty in Europe and China. Wheat prices are being resilient as drier conditions in Western Canada, Europe, & even Argentina continue to provide fodder for bulls to be loud, but the U.S. winter wheat harvest is picking up pace with combines going full tilt in the Southern Plains. With a stronger U.S. dollar because of the aforementioned economic concerns, canola continues to enjoy some solid prices, but I’m not quite so certain we’re at a top yet as we still have some more critical days in the growing season to get through yet.
On Friday, July 10th we got another installment of the U.S.D.A.’s W.A.S.D.E. report but despite the various weather issues affecting crops around the world, the report was relatively “blah”. U.S. average corn and soybean yields were left at 168.8 bu/ac and 46 bu/ac respectively but production for both row crops fell from the June estimate to 13.53 billion bushels (-100 million bushels) and 3.776 billion bushels (-7.4 million bushels) respectively thanks to lower acreage. As for ending stocks, the 2015/16 carryout for corn was set at 1.6 Billion bushels (102 million bushels less than June’s estimate) and 425 billion bushels for soybeans (-50 million bushels). For wheat, some big surprises were seen on the bearish side of the trade as production was pushed higher by 27 million bushels in the U.S. to 2.15 billion bushels (albeit the quality is certainly in question when it comes to the winter wheat crop). As for the 2015/16 carryout, wheat numbers are now pegged at 842 million bushels (+28 million from June) and 219.8 million tonnes on a global perspective (+17.4 million tonnes from June!). Global corn ending stocks for the 2015/16 marketing year were seen 5.25 million tonnes lower at 190 million tonnes, while soybean numbers were dropped by 1.42 million tonnes to 91.8 million.
On that note, most recent crop progress reports show that the quality of corn and soybean fields haven’t fallen as much as the market is thinking, which is why any rallies have been reigned in, with corn holding above the $4/bushel handling while soybeans straddle $10. However, most of the market is expecting the U.S.D.A. will have to further downgrade their expectations over the next two months going into Harvest 2015 as the closer we get to combines hitting the field, the better idea we have of what Mother Nature has actually helped grow (or not grow in some places).
Overall, the report focused mostly on the supply side of the equation but we need to keep our eyes on demand too! Specifically on the feed side, a wet May and damp June has created some of the best pasture conditions in years for livestock producers in the U.S. Southern Plains, especially Texas, whereas there’s now some speculation that more Canadian animals could be sent south to the U.S. (the pastures are literally way greener than on the Canadian side of the border!). Ultimately, the U.S. herd size is expanding while the Canadian is likely shrinking, leveling out some of the supply and demand of feed grains. That being said, I have to play the reminder card that substitution effects will start to play out if feed grain costs stay high (i.e. switching out barley and wheat for other rations), even as more livestock head to the U.S. (you still gotta feed the animals you have!).