A record-breaking heat wave and a bullish United States Department of Agriculture acreage report caused crop markets to soar last week.
These developments for now have put into the background market-dampening questions about the new U.S. administration’s commitment to biofuels.
Temperatures in the upper 30 C and no rain dominated the days leading up to Canada Day on the Canadian Prairies and the July 4 U.S. Independence Day in the U.S. northern Plains.
The first full week of July was expected to be a little cooler, with perhaps some rain, but there was nothing in the weather forecast that would make up for the blow crops took during the heat wave.
Minneapolis spring wheat futures in the five days to July 2 rallied almost five percent and hit the highest level since 2013.
ICE Winnipeg futures halted their decline and soared back 10 percent in the week to July 2.
Corn and soybeans also jumped higher, partly on weather stresses but also on the USDA acreage report that pegged planted area for the two major crops at less than what the trade expected.
The USDA put corn area at 92.692 million acres, below an average trade expectation of 93.787 million.
It said soybean plantings totalled 87.555 million acres, compared to analysts’ expectations for 88.955 million.
Corn was also supported by news that Brazil’s drought-stressed corn crop had also been hit with frost.
Private consultancy StoneX lowered its forecast for Brazil’s total corn production to a little less than 88 million tonnes. That is well below the June USDA forecast for Brazil of 98.5 million.
All these issues put upward pressure on grain prices but other factors were working against the rally.
As I noted last week, the U.S. corn belt is a tale of two regions this year. While the Dakotas, Minnesota and northern Iowa are all suffering from heat and lack of rain, southern and eastern parts of the region have good moisture. Indeed, early last week heavy rain in Illinois and Missouri caused flooding in low-lying fields.
Across the Atlantic, European crops are generally progressing nicely and Ukrainian authorities are talking about the potential for a record crop with prediction of all-grain production reaching 75 million tonnes, up from 65 million last year.
Russian crops also continue to develop under mostly good conditions.
Australia has issued an early forecast for above-average production from its newly seeded winter crop. The official forecast sees the wheat crop at 27.7 million tonnes, better than the five-year average of 23.6 million tonnes but not as much as last year’s record-breaking crop of 33.3 million.
It hopes for 10.4 million tonnes of barley, which compares to the five-year average of almost 11 million tonnes and last year’s 13.1 million.
The canola crop might approach a record with a current forecast of 4.2 million tonnes, compared to the five-year average of 3.4 million and last year’s 4.05 million.
Western Australia is enjoying the best moisture in years but South Australia is on the dry side.
The country is also enduring an almost unbelievable plague of mice. The New South Wales Farmers Association estimates the mouse infestation will knock almost $1 billion from the value of the state’s winter crop.
Argentina is seeding its winter wheat crop under good weather conditions. The Buenos Aires Grain Exchange issued an early forecast of 19 million tonnes, up from 17 million last year and tying the record set in 2018-19.
Aside from weather and crop conditions, grain market traders are also keeping an eye on the debate playing out in the U.S. capitol over renewable biofuel blending regulations.
The oil industry, refinery workers and some state governments do not like the blending requirements. They were able to get the previous administration to allow some refineries to get waivers from the blending requirements.
Biofuel makers, some farm groups and Midwest states favour the blending requirements.
Several recent developments, including a Supreme Court ruling on waivers that favoured refiners and a U.S. Court of Appeals for the D.C. circuit ruling against E15 ethanol blends, are calling into question forecasts of increased amounts of corn and soybeans going into biofuel. This recently put downward pressure on soy oil futures, which also sideswiped canola prices.
Now, the biofuel lobby and biofuel-supporting senators and members of the House of Representatives are putting renewed pressure on the administration of President Joe Biden to limit the number of blending waivers that the Environmental Protection Agency can give out.