It is not readily apparent, but the grain futures market last week may have signalled the opportunity to price some new crop.
In the three weeks to May 16, American grain markets have been on a roll with soybeans up six percent, corn up 16 percent and Chicago wheat up 21 percent.
Canadian market gains have been much more modest or have fallen as the Canadian dollar soared past 73 cents US, a six-year high.
The rally was largely driven by delays in seeding caused by heavy rains in the American Midwest and forecasts of more moisture to come. Analysts also noted the slow seeding in Western Canada and dryness in parts of Australia.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
There are two ways to look at the situation.
Because of the holiday Monday, this is being written May 16 and the situation might change by the time you read this. But given what is known now, it appears there is more risk of prices falling than rising.
When the rain stops in North America, seeding will surge ahead and the market will probably back off because the delay wasn’t really that bad.
With good surface and subsurface moisture, North American crops have lots of staying power if dry snaps develop during the growing season.
Also, the Canadian dollar has room to climb higher. Sentiment about the U.S. dollar turned even more sour as worries grew about
deflation.
All this points to the possibility that it was time to snap up the best prices of the spring before the market turned.
But for the bulls in the crowd, there is another way to look at it.
Grain futures rose even as major forecasts, like the U.S. Department of Agriculture’s May 12 report, forecast much improved production this year.
This led some to think the big commodity funds are paying more attention to tightening global stocks, especially in wheat. While production is expected to climb about five million tonnes from last year, and the traditional exporters should regain market share, year-end 2003-04 wheat stocks are forecast to fall again.
Global wheat stocks-to-use ratio is expected to fall to a 38-year low of only 22.7 percent.
Warnings that the food supply is growing perilously tight might finally be getting their proper due. If so, each time crop conditions are threatened, prices could jump.
