Durum prices might be most affected by the two major crop reports out this month.
The United States Department of Agriculture production report released Aug. 12, the day after our deadline, was expected to show good conditions for corn and soybeans, but spring wheat and durum suffering in western North Dakota and eastern Montana.
The USDA on Aug. 11 lowered its spring wheat rating to 53 percent good to excellent from 56 percent the week before. Last year, 68 percent was good to excellent.
The Statistics Canada estimate of production for July 31, to be released Aug. 22, could also reflect dry conditions that developed through July into early August in southwestern Saskatchewan and central and northern Alberta.
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At this point in the crop year, these dry regions seem to be among the few trouble spots around the world. The other troubled grain production regions are the Middle East, including Iran, Turkey, Syria and the former Soviet state of Kazakhstan.
On the other hand, crop forecasters in Europe and Australia have raised production estimates.
The Black Sea region crop is also large, perhaps record size in Ukraine, but quality is mostly feed.
It appears that quality and protein price spreads in wheat could be wide, reflecting a good supply of lower quality crop and continuing tightness in quality, high protein grain.
Grain prices have been falling the past few weeks because of near-ideal weather in the U.S. Midwest. But developments in outside markets also weighed on grain and oilseed values.
Oil in New York fell to $113 US per barrel by Aug. 11, down from a high of about $147 July 11.
Its fall, triggered by demand erosion, is turning investors against commodities in general, including grains.
Falling oil prices mean less upward pressure on inflation, reversing investors’ interest in commodities as a hedge against rising costs.
The U.S. dollar has also been rising, largely because of mounting evidence that the U.S. economic slowdown is spreading to other countries.
Interest rates in Europe had been higher than in the U.S., attracting investors to the euro, but now that European banks might have to start lowering interest rates to stimulate their economies, that advantage is lost and the U.S. dollar is gaining on the euro and other currencies.
The sharp fall in grain prices might be unnerving, but it could set the stage for another rally after harvest.
Grain users are jumping at what they see as bargains and exports are strong.
For example, U.S. wheat exports since the start of its crop year June 1 are running 12 percent ahead of the five-year average.
A good start to the marketing year will help prevent a significant build up in year-end stocks.
Today’s lower prices are also affecting political and policy decisions that could have had market impacts.
The U.S. decided against increasing the amount of land that can be removed from the conservation reserve without penalty.
Also, the Environmental Protection Agency rejected Texas governor Rick Perry’s request to cut in half the requirement for the use of corn-based ethanol in gasoline.
If Perry’s request had been accepted it would have slashed the amount of corn used in ethanol.
