Weak job creation in the United States and worries over the spread of the euro zone debt crisis to Spain weakened grain futures prices last week.
The decline in corn and oilseeds was lessened by emerging worries about dry weather in the U.S. southern corn and soybean growing area. Those crops were off to a great start because of early seeding and analysts had pencilled in record high U.S. yields. But if June turns out dry and hot, that optimism will have to be tempered. The dry weather could also affect the amount of soybeans planted immediately after harvesting winter wheat. The early wheat harvest was expected to increase second crop soybeans, but if it is dry, the increase might be limited.
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On the other hand, rain in southern Russia and Australia added to the downward pressure on wheat prices.
Western Canada is generally enjoying good crop weather. In a fortunate shift, the forecast for this week changed to drier and sunny from a previous outlook for heavy rain.
That should allow farmers to make better progress as they head toward the home stretch on seeding.
So the market focus for the next few weeks will likely pit the negativity over the world economy against the potential for yield damage if it remains dry in the U.S. corn and soybean region.
One date to remember is the Greek election June 17, which could prove to be a milestone in the future of the euro and the currency bloc. Polls last week were varied with some giving the parties that back the austerity plan that goes with the bailout a slight lead, and others giving the lead to the leftist party that wants to renegotiate the bailout package and weaken the harsh austerity program. If the leftists win, it would likely deepen the turmoil in the euro zone.
Longer term, the grain market will watch to see if predictions of huge South American soybean seeding plans come true.
Last week, analysts suggested strong soybean prices, good forward sales and the prospect of a developing El Nino delivering better rainfall to the continent could lead Brazil and Argentina to boost seeding and yields.
About a third of the anticipated 2012-13 Brazilian soybean crop has already been forward-contracted in deals that also provide inputs such as seed, fertilizers, and chemicals.
Although seeding won’t begin until next fall, private analyst Informa Economics forecast the 2012-13 Brazilian crop at a record 80.5 million tonnes, up from this year’s drought-hit 66 million tonnes.
The U.S. Department of Agriculture’s first forecast for the new crop is 78 million tonnes.
It is a similar story in Argentina. The USDA forecasts 55 million tonnes of soybeans and 25 million tonnes of corn, up from this year’s soybean crop of about 40 million tonnes and corn crop of about 20 million.
Although that would imply an increase in world soybean production of close to 30 million tonnes, the USDA also sees consumption growing and forecast that end-of-year global stocks would rise to only about 58.1 million tonnes from the tight 53.2 million this year.
With global rapeseed consumption expected to exceed production in 2012-13, leading to a drawdown in ending stocks, the oilseed market appears to be well supported from a fundamental supply and demand point of view for another year.
Now, if we could just fix the euro zone’s debt problems we could break out the champagne; but that is a serious and difficult-to-resolve issue that will drag on markets and the global economy for many more months.
