U.S. corn and soybean markets dipped last week as forecasts began to call for cooler temperatures and rain this week in the U.S. Midwest.
The drop in Chicago futures was surprising because it happened as a heat wave swept most of the Midwest. The heat might have cut corn yield potential, but soybean yield potential is more affected by August weather and traders seemed more concerned with this week’s cooler weather.
Also, it is not unusual for soybean futures to drop at the beginning of August, with the potential to rise again if heat and dryness resume as the oilseed flowers. The forecast for the August long weekend was for warmer conditions and the long range forecast for August from the U.S. National Weather Service Climate Prediction Center was for normal temperatures and moisture.
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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.
In other weather news, Argentina got a little moisture last week, allowing seeding to resume.
But the Buenos Aires Grain Exchange issued a forecast that wheat seeded area could drop to 12.6 million acres, down from 15 million last year. A smaller crop in Argentina, one of the top five wheat exporters, could support wheat prices in the coming year.
And in eastern Australia, which only a month ago was worried about drought, there is now too much moisture and as much as a million acres is in danger of not being seeded.
While weather dominated grain markets, there was currency news last week that could be positive for grain and oilseed markets in the future.
China increased the value of its currency and tied it to a basket of currencies. This move alone was not expected to unleash big new demand, but it marks a departure for the government in Beijing. It might signal that China is willing to let its currency appreciate further.
A stronger yuan makes imported commodities like grain and oilseeds cheaper for Chinese buyers meaning they might buy more.
As what appears to be a large canola crop develops in Canada and a big supply is carried into the 2005-06 crop year, it will be important for China to buy large quantities of the oilseed to avoid an oversupply.
Agriculture Canada forecasts the carry in at 1.725 million tonnes and a crop of 7.5 million tonnes for a total canola supply in 2005-06 of 9.375 tonnes, the third highest ever. But some traders think that could go as high a 10 million tonnes. Unless exports pick up to a pace
similar to 2000-01 when China was a big buyer, the 2005-06 carry out could become a real price depressor.
