The contrast between drought worries in Western Canada and rain-caused planting delays in the United States Midwest continued last week.
A new topic also entered market discussion: the US$14.5 billion trade mitigation farm aid package and speculation how it would affect American farmers’ seeding plans.
Normally, by the end of May, many U.S. farmers pack in their seeding efforts and apply for prevented planting coverage under crop insurance.
This led to ideas that American production this year would be less than originally planned, because saturated fields could not be planted and also the potential yield damage from late planting.
But the early speculation about the aid package was that it would encourage farmers to continue planting into June and hope for the best because program payouts will be based on the number of acres seeded.
On the other hand, the futures market is trying to dissuade soybean planting. The rule of thumb is that when the ratio of the soybean price to the corn price gets above 2.4-to-one it encourages soybean acres.
Last week, the ratio was down to two-to-one, or strongly in favour of corn planting.
Let’s hope that American farmers put their soybean seed back in the bin.
There might be a market for corn, but the world could do with fewer U.S. soybean acres to reduce the expected oversupply as demand falls because of China’s shrinking hog herd due to African swine fever.
The May U.S. Department of Agriculture supply and demand report forecast that global year-end soybean stocks would rise to 113 million tonnes at the end of the current crop year, up from 99 million last year, due entirely to increased stocks in the U.S.
The USDA also expected that things would not get better in 2019-20 with the year-end stocks forecast remaining at 113 million tonnes. That is a record high stocks-to-use ratio of about 32 percent, up from 27.5 percent in 2017-18.
Adding to the global oversupply of oilseeds is Canada’s canola surplus.
Before China started blocking Canadian canola, Agriculture Canada forecast that stocks of the oilseed at the end of the current crop year would be a manageable 2.5 million tonnes, but now they are forecast at a burdensome 3.9 million tonnes.
Canola exports were originally forecast at 10.8 million tonnes but have been reduced to 9.3 million tonnes.
The weekly export numbers are reinforcing this forecast. In the seven weeks since April 1, Canada has exported 1.24 million tonnes of canola, about 18 percent less than in the same period last year.
However, wheat exports continue strong, including a huge 531,400 tonne movement in week 42 alone, bringing the total since April 1 to 2.7 million tonnes, an increase of seven percent over the same period last crop year.
Looking ahead to 2019-20, if Canadian farmers stick to their intentions of planting 21.3 million acres to the oilseed and get average yields Agriculture Canada forecasts a crop of 18.9 million tonnes, down only about 400,000 tonnes from the current crop year.
The department assumes a full year of poor exports to China in 2019-20, leading to forecasted exports of only eight million tonnes and a crush of 9.25 million tonnes, leaving year-end stocks at a very burdensome 5.3 million tonnes. That is a stocks-to-use ratio of 30 percent.
But if the dry weather continues, yields could suffer and we could be looking at less than 18.9 million tonnes of production.
Also note that canola production in other countries could also suffer this year.
European grain industry association Coceral last week estimated rapeseed production at only 17.9 million tonnes, down two million from last year and the smallest since 2007.
Weather stress and insect damage are behind the decline.
And although some Australian growing regions received welcome rain in the past few weeks, they are still dealing with a long-term moisture deficit that keeps their canola crop at risk.