During the grain price rally in May, it seemed all the news supported prices, but now there are developments that both support prices and pull them down.
The weather has been the most important support.
A large area of Canada’s canola crop looks like it will produce below average yields.
Most of Saskatchewan got a crop-saving rain on the weekend, but the moisture missed most of Alberta, which is also dry.
Weather problems prompted the Canadian Wheat Board recently to forecast a 10.2 million tonne canola crop, down from 12.6 million tonnes produced last year. The board highlighted late crop development and the likelihood of frost damage before harvest.
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With all these weather threats, why did canola futures prices drop this month?
Partly it was the general selloff in all markets as traders stepped back from what was beginning to be an overly optimistic assessment of the global economic recovery.
But another factor was that China cancelled or delayed several cargoes of canola.
We reported April 30 that China was expecting to harvest a record rapeseed crop and had built up large government owned stocks of rapeseed and soybeans. Officials said they’d likely scale back buying in the summer.
In a story June 11, we reported that Beijing had begun to offer subsidies to Chinese crushers to encourage them to buy domestic rapeseed. So it was not a big surprise when they dropped four or five Canadian canola shipments in the last two weeks.
So the canola market is pushed higher by the production prospect, but pulled lower by demand prospects.
Another example of this push and pull is in the feed markets.
The corn market, which strongly influences oats and barley prices, has focused a lot on problems in the eastern part of the U.S. growing region with cold, wet conditions preventing planting and lowering the yield potential.
But less attention has been paid to the good growing condition in the western corn belt.
Market analysts Allendale Inc. argued in a recent newsletter that the corn acres that didn’t get seeded in the east would be partly offset with extra corn acres in the west. With co-operative weather and the strong corn price rally during seeding, farmers in Nebraska and eastern Iowa likely shifted fields into corn.
We’ll get more information on acreage in the U.S. Department of Agriculture’s June 30 report.
Another factor that could put downward pressure on feedgrain prices is losses in the livestock sector. Producers are reducing hog and cattle herds, which reduces demand for feedgrains.
