There was a great tug of war on grain prices last week with alternating positive and negative news coming so fast it was hard to keep up.
When the dust settled, corn and wheat futures prices were higher and canola inched up despite a sharp drop in soybean futures.
Everything was thrown into the mix: weather; a planting intentions report; outside market gyrations and currency fluctuations.
Going into the week, the trend was negative. Rain in the U.S. southern plains and in the Midwest has improved the production outlook for American crops. The advancing harvest in South America was encountering disappointing yields in some places, but a record soybean crop is still expected.
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On March 30, the International Grains Council released its monthly report, increasing its 2006-07 wheat production forecast to 594 million tonnes, up by six million tonnes from the month before largely because Ukraine and Russia reduced their estimates of winter damage, but also because spring moisture improved in Europe and the United States.
You’d think that would have caused wheat futures to drop, but they rose largely because of the influence of outside markets.
All week, commodities were on a roll, especially precious metals. Gold hit a 25-year high and copper, zinc and platinum reached record prices.
More investment analysts said that the commodity boom is not over yet and money flowed into commodity funds, some of it finding its way into grains, helping to support futures prices.
But the commodity rally also worked against grain prices in Canada. The loonie is sometimes called a commodity currency because of this country’s large output of oil, gas, minerals and metals.
The Canadian dollar had thankfully drifted back to the mid 85 cent range after peaking at almost 88.5 cents US in early March, the highest since November 1991. But on March 30 the commodity rally caused the loonie to jump almost a penny higher to 86.16 cents, bad news for Canadian on-farm grain and livestock prices.
By early this week, the loonie was back close to 85 cents as traders began to think the interest rate spread between Canada and the United States would widen with the U.S. expected to make two further rate increases this year, but Canada only one.
But the big news came with the March 31 U.S. Department of Agriculture planting intentions report showing a big, surprising shift from corn into soybeans, due to their lower seeding costs. Spring wheat and durum acreage forecasts were also down from expectations.
Following the report, soybean futures dropped sharply, corn rose just as sharply and wheat rose more modestly. On
April 3, wheat gave back some of the gains after more rain fell in the southern plains.
The report was based on a survey of American farmers in early March and their plans could change by the time they head out to the fields. Indeed, in 14 of the past 20 years, farmers planted more corn than they said they would in March.
But if it holds true, there is a strong chance that because of growing demand from ethanol plants,
U.S. corn use would outstrip production, causing ending stocks to shrink and support corn prices.
Overall, the report reinforced views that grains have more upside price potential than oilseeds this year.
