U.S. crop might be safe but drought threatens China
The rains have come and the danger to American corn and soybean crops is over.
At least that is what Chicago grain traders thought as they bid down the price of the two commodities on June 12.
The drought premium bid into the market earlier in the spring was quickly deflating as reports of good weekend rains over the Midwest and forecasts of more during the week promised good soil moisture during the critical corn pollinating period.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
In Canada, canola and barley prices were also lower because of American market declines and weekend rain over large parts of the Prairies.
On Monday, wheat prices were caught in the downturn, even though that crop got news last week that should be positive for its price.
The United States Department of Agriculture lowered its winter wheat production outlook. Dry weather and frosts earlier in the spring took a toll on the crop, and market reports from the Kansas City commodity exchange indicate traders expect the average yield projection will fall in future USDA reports.
Even more encouraging for wheat prices is the dryness in China.
The USDA dropped its forecast of Chinese wheat production by three million tonnes to 104 million.
That helped lower world year-end stocks to 106.25 million tonnes, compared to almost 126 million at the end of 1999-2000.
Unfortunately, despite the tightening of world stocks, the major exporters are still expected to have more than enough supply to meet demand.
China a possible market
Still, the China situation deserves watching.
This week, the capital Beijing said it will soon order water rationing for industries, hotels, restaurants and universities because of a severe drought gripping the northern part of the country.
In Henan province, where the winter wheat harvest is under way and which accounts for 20 percent of China’s wheat, rainfall since February has been 80 to 90 percent below the seasonal average. Weather forecasts hold little hope of relief.
The smaller crop is expected to squeeze China’s wheat reserves. USDA put its 2000-2001 year-end stocks at 18.4 million tonnes compared to 26.4 million the year before and 27.9 million in 1998-1999. That is a stocks-to-use ratio of just 16 percent, well below what is considered safe.
The USDA did boost China’s wheat imports by one million tonnes to a total of 3.5 million, but it would not be surprising to see that increase by several million more tonnes.
