Market confidence that the world would produce lots of crops again this year is eroding as weather problems pop up around the globe.But the price support these problems should generate is muted by the weaker than expected performance of the world’s major economies.In late spring, the market attitude was that the world would be awash in grain, but it is now July and Mother Nature is not co-operating. The combination of large carry in stocks and current production will be adequate, but not as burdensome as was expected a few weeks ago.Canadian production will be down because of incessant rain.American farmers planted less corn that expected. A recent heat wave has shaved yield potential in Western Europe.Western Australia is dry and grain handler and exporter CBH Group forecast last week that wheat production in the state could fall to 6.5 million tonnes from about eight million last year.Drought and heat are slashing production in regions of Russia along the Volga River and in the southern Urals. On July 5, the Russian government reduced its grain production outlook to 85 million tonnes from an earlier forecast of 88-90 million. Last year, it produced 97 million tonnes.Private forecaster SovEcon put the crop at 82 to 86 million tonnes and said that could fall to 80 million if the heat persists for another two weeks.China’s deal to buy 500,000 tonnes of Canadian wheat in the new crop year is linked to weather problems.These problems, particularly the smaller U.S. corn area, helped grain futures rise last week. Also supportive are indications that the reviving U.S. ethanol industry will consume more corn than previously expected.Between the close June 25 and July 2, July corn rose 6.2 percent and Winnipeg November canola rose 0.6 percent.But weak economic news caused other commodity prices to fall. Oil was down 8.5 percent on the week, copper was down six percent and the CRB Index, a benchmark of a wide range of commodities, fell four percent.The pessimism in non-grain commodities was fueled by data released last week showing Chinese manufacturing growth slowed in June as Beijing took steps to cool the property market and curb bank lending.The Baltic Dry Index, a benchmark of world shipping, is falling. It lost a further nine percent last week.The United States reported that fewer of its citizens are working. The unemployment rate fell slightly, but that was because a portion of the people who had been looking for work dropped out of the search. U.S. consumer confidence is down and home sales in May crashed as various government economic support programs start to wind down.And Europe continues to struggle with its government deficit problems. Austerity measures coming into force there threaten to stall European growth.It is not clear whether these signs point to a period of slow growth or contraction – the second down leg of a double dip recession.Let’s hope it is simply slow growth. But even then, it will present a strong headwind against hopes for further grain market rallies.
Read Also
Canola council cuts field agronomy team
The Canola Council of Canada is cutting its agronomy team as part of a “refreshed strategic framework.”
