Worries about a potential drying trend in North American cropping areas and confirmation of reduced soybean and corn production in South America kept crop prices edging higher last week.
Indeed, last week marked the ninth consecutive weekly increase for soybeans, the longest bull run for that crop in 43 years. The rally started from an exceptionally low point in February, but has carried soybeans up to the highest point since the summer of 2014, although still shy of the $13-plus level common in 2011, 2012 and 2013.
Canola’s rally has been a little less aggressive, but futures added about $10 a tonne last week. The rally in canola was all the more respectable as the Canadian dollar neared US79 cents, up from less than 77 cents at the start of June.
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Still, canola has not yet hit the levels seen last summer when drought worries in the western Prairies fueled a rally.
Market rallies need constant refuelling with bullish news to keep them going.
Last week’s U.S. Department of Agriculture monthly supply and demand report confirmed its previous cuts of Argentina’s soy crop, and lowered its estimate of Brazil’s soy crop to 97 million tonnes, from 99 million in May. Brazil’s corn crop dropped to 77.5 million tonnes from 81 million in May.
The news fed the soybean and corn rally, but it might have been the last chapter in that story because the soybean harvests in South America are now mostly done.
With the problems in South America, the market expects international crop demand will turn to the United States for corn and soybeans.
Because of the improved export demand expectations, USDA trimmed its forecast for year end corn and soybean domestic stocks for the current crop year.
It also reduced its forecast for domestic year-end stocks for corn and soybeans 2016-17, but raised its stocks outlook for wheat.
And it cut its forecast for global 2016-17 year-end stocks for soybeans and corn, but raised its outlook for wheat to a record high.
Indeed, the report was price-negative for wheat as U.S. winter wheat farmers begin harvest of what is expected to be a record high yield at 50.5 bushels an acre.
In the coming weeks, the market will remain riveted on weather forecasts.
The U.S. Weather Service Climate Prediction Center shows warmer than normal temperatures in the Midwest through the summer and a drier trend in the western corn belt in the latter part of the growing season.
Another weather model, the U.S. National Centers for Environmental Prediction Climate Forecast System version two, has a daily forecast for the month of July that has been getting progressively drier in the Midwest since the start of June.
Fortunately, this forecast shows average to above average moisture for the Canadian Prairies for July.
On the government report front, Statistics Canada will release its seeded area report June 29 and the USDA will release its report the following day.
Early this week, the market was pricing in the possibility for a surprise on the high end for U.S. soybean acreage when the USDA report comes out.
But the market was also weighing the potential for a warm, dry July in the Midwest. The big funds last week continued to build their record net long positions in soybeans, meaning they are generally betting on higher prices.
If the weather does not turn out hot and dry, there could be a rapid price pull back.
It is worth noting that the USDA’s forecasts for global soybean 2016-17 use and ending stocks works out to a stocks-to-use ratio of just over 20 percent or about 74 days worth of supply.
The last time ending stocks fell to 74 days supply was 2011-12 and in the summer of 2012, U.S. soybean futures soared to more than $17, but prices that summer were also being driven higher by a June-July drought in the Midwest.
Soybeans have recently traded between $11.50 and $12, so there is potential for a further rally of $2 to $3 and of course that would also help to support canola futures.
