Investor confidence will likely have the greatest influence on the grain trade in the coming weeks.
The dominant issue in all markets will be how investors react to the massive financial bailout package once they digest the details. Early reaction was mostly positive.
But many market watchers still worry that the United States economy might be in even worse shape than thought. Time will tell and markets will be uneasy for months to come.
The fundamental factors within the agricultural markets themselves continue to be mostly comforting to traders, but there are clouds on the horizon.
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Yellow pea prices collapse on lack of demand
China’s tariffs and India’s accumulated stocks from previous imports have curbed those countries’ demand for Canada’s yellow peas just as harvest adds price pressure at the farm gate.
In Canada, the past week was excellent for harvest. It appears canola yields are better than expected.
In the United States, corn and soybean harvest has also benefited from generally good harvest weather.
The European harvest produced more grain than expected, but wheat quality suffered. Crops in the former Soviet Union are also large, but low quality.
Australian production appears on a knife edge. Dry conditions have returned, causing the Bureau of Agricultural and Resource Economics to shave five percent from its earlier production forecast to 22.5 million tonnes compared to 13 million last year. Some private forecasters’ estimates are closer to 20 million tonnes.
In New South Wales, normally the second largest wheat producing state, primary industries minister Ian Macdonald said Sept. 20 that rain was urgently needed in the next few weeks to prevent severe yield cuts. Thunderstorms were forecast for early this week.
Argentina has also been dry. The net effect will be a crop of about 12 million tonnes, down 25 percent from last year.
The market has already factored in a smaller Argentine crop. The U.S. Department of Agriculture’s forecasts it will be 12.5 million tonnes. If the drought continues and production forecast are cut further, it would lend more support to wheat prices.
The dry conditions are also interfering with corn seeding in Argentina, the world’s second largest corn exporter.
These problems in the southern hemisphere support prices, but will be side issues as long as the financial system is in turmoil and the U.S. and world economies are slowing, raising the prospect of slowing demand for food.
