The lower stocks reported in last week’s supply and demand estimates should have generated a bigger market response, said the chief commodities economist at INTL FCStone.
“The numbers that came out of the report should have rallied prices or caused some selloffs, but the market’s response was very mundane,” said Arlan Suderman.
Last week’s United States Department of Agriculture World Agricultural Supply and Demand Estimates report showed the effects of dry conditions in wheat-producing regions like the U.S. central-west and south, the Black Sea countries and Australia, as projected production fell from earlier estimates.
WASDE reports come out every month and serve as a guidepost for the market, but some months are more important than others. May is a big one, as farmers’ intentions are becoming fact and yield setting moisture conditions and seeding dates are known.
“This report sets the table for the next few months…. This is the first real look we have at the next crop year,” Suderman said.
The report’s fairly reliable seeding intentions, combined with that country’s National Agricultural Statistics Service numbers, provide indications to producers on the Canadian Prairies where the competing American cropping is heading.
American canola acres have been rising, but are flat for 2018 seeding, at 2.01 million acres. But farmers in states where the crop is proving popular are adding more of it to their rotations. North Dakota grows the most canola and farmers there will increase their acreage by four percent this year.
Washington state and west-central Idaho have been adding canola as a rotation opposite wheat in the Palouse region, with both of those states seeding record crops this year.
South of the border flax is expected to be down from last year. Grown almost entirely in Montana, North and South Dakota, the crop will be sown on about 225,000 acres this year, a 25 percent reduction from 2017 and 40 percent off 2016 plantings.
However, analysts point out that Kazakhstan is quickly becoming a big export player in the flax business.
Canadian farmers are planning to grow less of the crop this year compared to last, and they will still remain as much as 30 percent off traditional acreage. Agriculture Canada suggests that seeded acres will end up at around 900,000 acres compared to slightly more than one million last year and 1.6 in 2015-16.
The 2018-19 outlook for U.S. soybeans is for higher supplies, crush, exports, and lower ending stocks compared to last year. That could have boosted markets more than it did, said Suderman.
The soybean crop is projected at 4.280 billion bushels, down 112 million from last year’s record crop on lower harvested area and yield trends. Soybean supplies are projected at 4.835 billion bu., up two percent from last year, due to higher carry-in stocks.
Total U.S. oilseed production for 2018-19 is forecast at 115.6 million tonnes, down 3.3 million tonnes from last year, mainly due to lower soybean production. USDA said production forecasts are also lower for peanuts, cottonseed and sunflower.
“The U.S. dollar is trading opposite of the commodity indexes. Higher dollars make it harder for commodities to rise, overall,” said Suderman.
What happens to soybeans also happens to canola.
Brazil’s soybean crop is up two million tonnes this year, while drought drove Argentina soy down one million tonnes.
According to the WASDE report, global supplies of corn have tightened up one million tonnes. The market seems to have provided a little support, but it is fading since last week.
The USDA factored in drought conditions with lower supplies predicted for hard red winter but predicted increases in soft red wheat and steady supply for white wheat.
“In the dry areas of the Plains, the crop is two to five weeks behind normal and heat is coming. It’s the number one factor in robbing yields in wheat, even if you have water. If you get that heat during the grain-fill period that’s a problem. That is why they get very large yields in England,” said Suderman.
Bruce Burnett of Glacier MarketsFarm suggests that this crop’s U.S. ending stocks for wheat will be in the area of 840 million bushels, considerably lower than last year but still a large number.
Potential drought and late seeding on the U.S. Northern Great Plains and Canadian Prairies are not yet being fully factored into prices or estimates, said Burnett.