Grain markets will likely follow stock markets down this week as nervous traders assess political changes in Europe, where voters rejected austerity minded governments in France and Greece.
Since the debt troubles in Greece morphed into a continental crisis, the response, led by Germany, has been to require governments to slash spending and develop plans to end deficits as a prerequisite for any bailouts.
That meant unpopular cuts to social spending and civil servant jobs. The opposition argued that economic growth necessary to reduce high unemployment and raise government revenue would never come about so long as governments were slashing spending.
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Voters agreed.
But can already deeply indebted countries afford to spend more to stimulate economies? Will the market lend money to countries in danger of defaulting?
This will likely be the economic story of the summer, providing a volatile environment in which crop markets operate.
The current prevailing story in crop markets is one of tight old crop stocks but expectations of large new crops. However, heavy rain in Saskatchewan last weekend might result in prairie crops smaller than expected just a couple of weeks ago.
Statistics Canada confirmed May 7 that stocks here are tight.
Canola stocks as of March 31 are down nearly one-third to a seven-year low. Stocks fell to 4.3 million tonnes, which was at the low end of a range of trade expectations.
Stocks of most other crops are also down from last year, but were within the range of trade expectations.
Lentil stocks were the exception, coming in at 1.18 million tonnes, up from last year’s 1.14 million.
Analyst Brian Clancey of STAT Publishing had forecast 950,000 tonnes and said that was a burden on the market. However, farmers can keep their lentil bins locked and wait for the market to come to them because they are generally financially strong.
Globally, it is rare for a day to go by when South American soybean crop estimates are not cut. Expect the U.S. Department of Agriculture to catch up with these declines when it produces its monthly update on world crop production May 10.
However, a bumper U.S. winter wheat crop is developing ahead of schedule and the weather is conducive to big corn and soybean yields, so that will pressure new crop prices.
