Let’s hope these are the darkest hours before the dawn because the near-term outlook in crop prices is dark indeed.
Large stocks remain from huge global harvests last year, and it looks like South America will add to the surplus with its own record crops in the next two or three months.
International buyers will soon switch their soybean buying to South America from the United States.
As well, oil prices are tanking because of oversupply, and other commodities are down as global economic growth slows.
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Investment funds are adding to the downward pressure as they pull money from commodity markets hoping to find better returns elsewhere.
Exchange rates are in flux as money flows into the U.S. dollar, which is the currency of the one country that appears to be gaining economic momentum instead of losing it.
The strong U.S. dollar makes American crops expensive on world marketplaces compared to other exporters. That damper on American exports works its way into U.S. futures markets.
A big wheat order from Saudi Arabia was probably largely filled by European wheat.
Wheat is further under pressure after a weekend snow and rain system brought welcome moisture to the southern U.S. Plains winter wheat belt and the Midwest. The snow will protect winter wheat from cold weather.
In Canada, the big grain companies appear to have enough wheat and canola to meet immediate needs, and their basis bids reflect that. The shipping focus has shifted to the minor crops at least for the next several weeks.
However, we could be getting close to the bottom of this crop price sell-off.
U.S. futures markets are at or are getting near technically oversold levels.
Brazilian forecasters are slightly trimming their estimates of the size of the soybean crop. That is a little positive for prices, but it still looks like it will easily post a record. As well, the soybean crop in Argentina still looks like a record.
Remember, February in South American is like August in North America when it comes to crop development.
The financial restrictions on Russian wheat exports kicked in Feb. 1, but most of their sales have already been made.
It will be weeks yet until Russian wheat crops come out of dormancy and can be assessed for winter damage.
The U.S. cattle herd is rebuilding quicker than expected, which will mean more demand for feed grains down the road.
However, the biggest near-term hope for stronger prices is the usual seasonal rally into spring seeding season.
The usual “buying of acres” could provide a modest lift to crop markets.
Canadian growers can also be thankful that the range of smaller acreage crops, from pulses to flax to birdseed, is looking strong.
As well, the Canadian dollar could decline further because many analysts think the Bank of Canada will trim interest rates again. This has mixed implications.
On the one hand it enhances the attractiveness of canola over U.S. soybeans in international markets, but on the other it makes imported inputs and machinery more expensive.
