The triggers for grain price movements are often clear, but not always, as was the case last week when crop prices, including canola, rose.
The controversy over potential American biofuel policy changes was certainly one factor that pushed crop futures prices higher, but other factors were also at work.
The biofuel hubbub was typical of the political climate in Washington, D.C., these days with leaks of potential big changes to policy, denials and allegations of conflicts of interest and crony capitalism. The tale is laid out in a separate story on this page.
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The media reports and rumours floating in the biofuel industry were enough to lead the market to believe that the result would be increased demand for corn and soybeans to make into biofuel.
Soy oil led the market higher.
DTN reported that part of supposed biofuel incentive talk was that the biodiesel tax credit would be brought back but paid only to American producers rather than blenders.
The previous version of the credit went to blenders, which could apply it to imported biodiesel. Limiting it to U.S. producers would be a big boost to local soybean demand, and that was behind the initial 6.7 percent spike in soybean oil futures.
When the White House denied that changes were in the offing, the crop market backed down, but not all the rally was lost.
May soybeans rose 1.3 percent over the week, soy oil climbed 5.2 percent and canola rose $15.90 a tonne, or 3.1 percent.
Some might believe that changes to biofuel laws will eventually come. However, there are also other issues supporting crop prices.
One was that rain in north-central areas of Brazil was flooding an unpaved section of BR-163, known as the soybean highway.
The road, which links key soy producing regions of Mato Grosso state to ports on the Amazon River, has been undergoing a billion dollar upgrade and paving, but a small amount remains a dirt road.
The flooding and mud slowed deliveries of the record large soybean crop.
Private analytics firm Informa Economics raised its forecast of Brazil’s crop last week to a record 108 million tonnes, trade sources told Reuters, up nearly two million tonnes from its previous estimate.
However, another reason for slower than expected exports from Brazil is that farmers are reluctant sellers. Brazil’s currency has risen against the American dollar, and that means the amount farmers receive for their crop, in the local currency, has fallen.
Soybean producers in Brazil have sold 45 percent of the crop, compared with 54 percent a year ago and a 50 percent multiyear average, Reuters reported.
Another factor that could be supporting crop prices is a small, but growing worry about American weather.
A large part of the country is experiencing spring-like weather much earlier than normal. Dodge City, in western Kansas, was particularly warm March 6 with a high of 26 C with strong, drying winds.
The winter wheat crop is coming out of winter dormancy early and will need moisture to grow. But Kansas, the largest hard red winter wheat producer, is dry, and a large part of the southern Midwest and southeastern United States also have had well below normal precipitation in the past 60 days. Also, an actively growing wheat crop is at risk of damage if the weather turns frosty again.
It is too early for U.S. weather to be a significant concern, but the unusual spring is likely something in the back of traders’ minds.
With Pacific Ocean temperatures warming and the potential for an El Nino to develop, there is a greater possibility for the warm weather in the southeastern U.S. and southern U.S. Plains to continue through spring, but that does not rule out cold snaps.
