The U.S. Department of Agriculture’s March 10 report took the wind out of the grain price rally, and now the market will likely tread water until the U.S. prospective plantings report March 30.
Like a fire needs fuel, market rallies need a constant feed of bullish news to keep them going.
Monday’s USDA report wasn’t bullish. Nor was it terribly bearish.
The department trimmed its domestic soybean and corn ending stocks forecast as expected and cut its outlook for South American soybean production, also about as expected.
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The rally had already taken all of this into consideration, so traders took the opportunity to sell and lock in the profits they had made on the rally.
What will drive markets in coming weeks?
The South American crop is in its harvest phase, so production risk is fading. Some private traders have lower production forecasts than the USDA, so there could be further slight trimming in the department’s report next month.
However, most attention will now swing to weather and seeding forecasts for Northern Hemisphere crops.
The fact that oilseed prices have been relatively better than grain prices this winter has analysts thinking there will be a modest increase in soybean and canola seeding this spring.
The unrest in Ukraine will also be a factor, depending on the level of disruption to field work and spring seeding.
However, for now the dispute does not look like it will deteriorate into war.
Beginning this week, the USDA has started weekly reporting on the status of the winter wheat crop now that it is breaking dormancy.
These reports should shed light on the damage caused by the severe winter.
Most at risk are the western parts of the hard red winter wheat region. Winter wheat is a resilient crop and favourable weather this spring could help revive plants, but the stress will mount if it remains dry.
The warming in the Pacific Ocean, which could perhaps lead to an El Niño by this summer, is also a threat. El Niños tend to reduce rainfall in eastern Australia, where it is already extremely dry.
Southeast Asia could also be dry in an El Niño, hurting palm oil production. However, it is not certain that there will be an El Niño and if so, how strong it will be.
A more immediate factor for Canadian farmers is the government’s actions to force railways to move more grain.
If there is a big increase in movement, it will provide delivery opportunities and should start to narrow the basis, which has been extremely wide, making Canadian cash grain prices pale by comparison to American cash bids.
