It’s hard to worry when the weather has been great

Reading Time: 2 minutes

Published: June 23, 2016

Falling crop prices this week indicate that the crop market is questioning its rallying trend when crop conditions in most of the world are good.

As July gets closer, weather forecasts for the month get less speculative and they are turning out not as bad as some of the more alarmist analysts had thought. So it might be clear sailing for corn, which sets its yield in July.

Soybeans flower in August, so that is when weather is critical for that crop. And global stocks are fairly tight for oilseeds, so we might see another round of market fireworks if the August forecast looks hot and dry for the U.S. Midwest.

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Concerned Chinese investors look at prices of shares (red for price rising and green for price falling) at a stock brokerage house in Jiujiang city, east Chinas Jiangxi province, 8 July 2013.

Chinese stocks tumbled on Monday (8 July 2013) on speculations that the resumed trading of Treasury bond futures and new share offerings will hurt stock prices. The Shanghai Composite Index dropped 48.93 points, or 2.44 percent, to 1,958.27 at the close.No Use China. No Use France.

Bond market seen as crop price threat

A grain market analyst believes the bond market is about to collapse and that could drive down commodity values.

But if the weather remains favourable, expect prices to continue to wind down.

WATCH THIS WEEK’S VIDEO CROP MARKET UPDATE

There is always potential for surprises in the seeded acreage reports from Statistics Canada June 29 and U.S. Department of Agriculture June 30.

But it has mostly been a weather market and here is how we got to this point.

The rally began gradually in March, took off in April, paused for a breather in the second half of May and soared in June.

Soybeans enjoyed nine consecutive weeks of price grains.

But starting June 10, the weather forecasts for the U.S. Midwest for the rest of the month were not as dry as had been feared earlier. Since that point, crop prices have fallen.

Because of the enormous production potential of the Midwest, conditions there dominate the futures markets.

There had been much speculation about what a rapid switch to a La Nina weather pattern from El Nino in the Pacific would mean for Midwest weather.

La Nina tends to deliver drier weather to that region.

But it was not clear if the switch would happen early enough in the summer to affect the Midwest growing season.

On the front of this week’s Production section, reporter Robin Booker has a Canadian weather outlook from Drew Lerner of World Weather Inc. Booker also asked Lerner about U.S. weather.

He said might be dry this summer in parts of the half of the corn belt west of the Missouri River, but the east looks not bad. And if the region sees less rain, crops should be able to rely on fair soil moisture reserves, at least for a while.

Currently, the U.S. Department of Agriculture’s crop condition rating of corn is great.

So, while the Midwest weather outlook is not perfect, the level of weather risk premium in the market appears too high and prices this week are adjusting down.

Also, the market can’t ignore that crops in other areas of the world are developing nicely.

Crops in Western Canada and the U.S. northern plains are generally good.

Every long-term forecast I see for the Canadian Prairies for the summer looks favourable for moisture for crop growth.

Australia’s cropping areas have been getting rain and the government last week nudged up its wheat production outlook.

Western Europe had too much rain in May and that might affect quality of some crops, but yields are expected to be above average.

Ukraine and Russia are enjoying good spring weather and Russia has forecast a record large crop, although it too might have quality problems because of excess rain.

There is no significant crop problem in China.

The monsoon has arrived in India, allowing seeding to begin. The monsoon is expected to be good now that El Nino is out of the way.

About the author

D'Arce McMillan

Markets editor, Saskatoon newsroom

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