The U.S. Department of Agriculture’s June 10 report helped confirm thoughts that global supplies of oilseeds and feed grains will remain tight in the new crop year.
The Canadian Wheat Board’s sobering assessment of the poor prospects for the prairie crop added to expectations of tight supply.
But agricultural markets take their direction from more than supply and demand forecasts.
As this week began, prices were lower because investors were spooked by thoughts that the three-month stock market bull run is overdone. During the run up, global traders had taken money from safe investments denominated in U.S. currency and shifted it into equities and commodities.
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A side effect was a falling U.S. dollar. They now think markets are too optimistic and are shifting money back into the dollar, prompting its value to rise sharply June 12 and 15. That helped push down commodities priced in U.S. dollars.
While currency exchange and investor sentiment dominate daily market variability, the USDA report can’t be ignored.
It cut its estimate of soybean year-end stocks to a 32-year low and dropped the average corn yield. It didn’t reduce corn seeded area but might in its June 30 report.
Even if the United States produces a good soybean crop, the small stocks at the start of the year mean the world soybean situation will be tight until South America harvests its next crop late in the first quarter of 2010.
Oilseed supply won’t be helped by the Canadian canola crop, as stories on page 6 spell out.
On the corn side, a smaller U.S. crop means demand will exceed production and the carryover at the end of 2009-10 will likely become worrisomely tight, supporting feed grain prices.
It will also support wheat, which is still struggling with USDA’s forecast of a huge carry into 2009-10 of 168.4 million tonnes, up from 2007-08’s 119.97 million. The USDA report forecast that global wheat production would exceed demand in 2009-10, leading to year end stocks climbing to 182.65 million tonnes.
However, with the wheat board forecasting wheat and durum production of only 20.8 million tonnes in Canada, compared to the USDA’s forecast of 25 million tonnes, the wheat situation might become less burdensome, particularly if the drought in Argentina continues to be severe and the developing El Nino in the Pacific Ocean diverts rain from Australia later in the year.
