Considering the generally favourable crop weather news around the world and prospects for stronger than expected global yields, grain and oilseed futures prices are holding up surprisingly well.
Crop watchers in the United States are starting to talk about bumper yields of spring wheat, corn and soybeans.
The European harvest is in full swing after rain delays and early reports from France are of better than expected yields. Even in Canada, the situation in some areas looks better than it did a month ago, although production will be down from last year.
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The International Grains Council last week increased its forecast of world corn production to 781 million tonnes, up from its previous estimate of 768 million.
It raised its forecast of wheat production to 654 million tonnes, up from 652 million.
India’s monsoon has been fickle, creating record dry conditions in June but spreading rain though July. According to the government, pulse seeding there after a slow start has caught up. On the other hand, rice, the main crop sown at this time, is still well behind in seeding. If rice supplies are inadequate, it would likely increase demand for wheat, but India has large stocks of that grain and a switch is not expected to drive up prices.
Ideas of bigger than expected world crops would normally weigh prices down, but there are still uncertainties about what will wind up in the bin. Also, there are positive developments on the demand side, as seen in the story on this page about Chinese soybean demand.
The map accompanying this column is from the Canadian Wheat Board. It shows how cool it was across most of the Prairies in July. Late seeding and the cool weather means delayed crop development. We will need the frost to hold off well into September to get this crop harvested and stored in good condition.
Similar concerns stalk late American crops.
If an early frost hits, there will be major quality problems.
So that is one reason crop prices are holding up.
Another is a revival of optimism that the recession is ending.
Many companies posted better than expected results in the second quarter. Unemployment in the U.S. appears to be levelling off and the housing market is stabilizing.
The economies of China, Japan and South Korea are also showing renewed life. This is leading to expectations for greater demand for raw products, which is supporting commodity prices, including grain.
Exchange rates are another piece of the puzzle. Through July, the value of the U.S. dollar has eroded against most currencies. Since markets collapsed last year, the U.S. buck has been viewed as a safe haven and investors parked their money in it. But now that the economy appears to be improving and the value of stocks and commodities are rising, investors are pulling money from the safety of the U.S. dollar and putting it into stocks and commodities. That is weakening the U.S. buck and when it drops, it raises futures prices of commodities that trade on U.S. exchanges. The explanation is that a weak dollar makes U.S. crops cheaper for buyers whose currencies have appreciated and they will buy more.
There are many factors at work, pulling and pushing crop prices, but for the next few weeks the variation will likely be in a narrow range.
The break out of the range, higher or lower, will depend on how soon the combines roll and the activities of Jack Frost.
