As Ed White notes in his column this week, continuing production risks have helped crop prices during the recent economic and stock market turmoil.
It will be a couple months before all the North American crop is in the bin and it appears U.S. crops will be smaller than expected earlier this summer. Canada’s late crop faces a frost risk.
So while worries about Europe’s debt crisis and America’s slowing economy have, since July 1, dragged down stock markets and some commodities, the continuing risk to yields have lifted crop markets.
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From the start of July to Aug. 19, the Standard and Poor’s 500 index fell by almost 16 percent, New York crude oil dropped by about 14 percent and copper by about six percent.
But in the same period, December corn rose 21.5 percent, Minneapolis spring wheat climbed 14.4 percent and Winnipeg canola edged up 0.3 percent.
The corn crop keeps deteriorating because of heat and dryness in the United States.
Elwynn Taylor, a meteorologist with Iowa State University Extension, thinks the U.S. corn yield is likely to average only 149 bushels per acre. That is four bushels an acre below the U.S. Department of Agriculture estimate released Aug. 11.
Such thinking is behind the rally in corn futures.
The rally in wheat is a little more tentative. As harvest gets fully underway in North Dakota, spring wheat yields are disappointing and that is supporting futures.
But prices are also supported by worries that drought-ravaged farmers in the U.S. southern plains will seed less winter wheat this fall.
I wonder how serious a threat that is? After poor production this year, farmers will be eager to get a crop. They have a seeding window of a couple of months to wait for rain and, with the La Nina receding, the likelihood of fall rain is improving.
If they get rain, they will seed.
All they need is enough moisture to germinate the crop. Often a poorly rated crop entering winter dormancy can be saved by spring rains and produce a good harvest. Any forecast of rain for the southern plains will deflate wheat futures.
There is more wheat around this year than last year and the competition could put downward pressure on prices.
Russia’s grain crop estimate was recently raised, with analysts forecasting the crop will reach or exceed the top end of the official forecast of 85-90 million tonnes. A savage drought slashed production last year to 61 million tonnes.
But quality is becoming an issue in the Black Sea and Europe and that might serve to support protein premiums, which have been falling this summer.
Rain during harvest created wheat quality problems in Russia and Germany and there are conflicting assessments of Ukraine’s situation.
Ukraine’s government says 70 percent of the crop is milling quality but the trade says its closer to 40 percent.
