Corn futures, the backbone of the grain market, last week hit the highest point since the summer of 2014. These were lifted by the U.S. Department of Agriculture, reducing its estimate of corn seeded area and yield, as well as expectations that further cuts will come.
Details of the report and speculation on how more corn production cuts are coming in future reports are in Sean Pratt’s story in the Markets section.
Soybean futures did not change much because acreage and yield forecasts for that crop were unchanged in the report. That was not that surprising given that soybeans are seeded later than corn.
The most bearish news in the USDA report was the increased forecast for current year 2018-19 U.S. soybean ending stocks to 1.07 billion bu. from 990 million in May because of the slow pace of exports.
The USDA forecast 2019-20 year-end stocks at 1.05 billion bu. for a stocks-to-use ratio of 24.9 percent, down slightly from the current year’s 27.2 percent but much worse that the 10.2 percent posted in 2017-18.
The global soy supply situation is even more comfortable with a forecast for the 2019-20 supply-to-use ratio at 31.7 percent.
By comparison, U.S. domestic corn stocks-to-use now stand at a bullish 11.8 percent and the global ratio at 25.6 percent.
It keeps raining in the Midwest so likely the final push in seeding will be stymied by soggy fields.
A Bloomberg poll of analysts, on average, said that 2.2 million acres of soybeans would wind up not being planted.
Also, both corn and soybeans are way behind in development and condition. Many crops will have poor root development and will be stressed if hot summer weather materializes.
So expect USDA’s forecast for soybean acreage and yield to drop in coming reports. That would help to support canola futures.
However the momentum for a soybean rally is held back by demand worries, as relations with China continue strained.
This concern was reinforced last week when Chinese buyers asked to push back two million tonnes of July U.S. soy shipments to the following month.
There is lots of speculation on why they want a delay. Some say it is to put pressure on the U.S. in trade talks, while others note that the severe cuts to the Chinese hog herd from the fight against African swine fever mean that soy meal demand is way down.
There is already a surplus of soy meal in China pushing its price down to the point where it is crowding out other protein meals, including canola meal.
The future of oilseed demand and prices will depend a lot on international politics and negotiations.
The market will closely watch the G20 meeting later this month when U.S. President Donald Trump and China President Xi Jinping are planned to meet face to face to address the stalled trade talks.
Trump has threatened more tariffs if Xi does not make concessions.
Also, Prime Minister Justin Trudeau is expected this week to meet with Trump in Washington in advance of the G20 meeting in the hope of forming a united front in dealing with China and getting help on specific Canada-China issues.
In retaliation for Canada proceeding with an extradition hearing for Huawei executive Meng Wanzhou on an arrest warrant issued by the U.S., China has arrested two Canadians on what appear to be trumped up charges, has stopped buying Canadian canola and has restricted two major Canadian pork exporters. Two other Canadians in China held on other charges have been sentenced to death.
The Canadian government wants to leave the extradition process to the courts. To interfere politically to drop the case would anger the Americans and raise the possibility for other countries to pressure Canada by arresting its citizens and using them as bargaining chips for concessions.
The extradition process won’t move quickly. The British Columbia Supreme Court set the formal start of the hearings for Jan. 20 next year, and the case will likely take months to play out.
The only hope for a speedier resolution is getting the U.S. to link the Meng situation to its wider trade talks.
If it does drag on, then the $150 million in increased insurance coverage from Export Development Canada to help canola exporters drum up new international buyers will be much needed.
I can’t wrap up without happily noting that the drought in Western Canada finally broke with good coverage already in Alberta and a forecast for the showers to spread through Saskatchewan this week.
Obviously, timely moisture will need to continue, but it is nice to know that it can rain.