The confidence that global crop traders felt about grain supply is being shaken as bad weather in several regions takes a toll on yields and American livestock feeders consume more grain than ex-pected.
Drought in large parts of Saskatchewan and Alberta, excessive rain in large parts of the U.S. Midwest, a heat wave in Europe, hot, dry weather in a part of Russia’s grain belt and reduced wheat seeded acreage in Argentina are threatening to reduce global crop production.
The U.S. Department of Agriculture estimate of domestic crop stocks as of June 1, which was released last week, was smaller than expected as livestock consumed more grain than expected. Corn stocks were about 2.8 million tonnes less than the average of trade forecast, and soybean stocks were about 1.2 million tonnes less, implying that the USDA will have to trim its forecast for year end U.S. stocks.
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Corn acreage in the USDA report was less than expected, and many believe the soybean seeded area will be less than what was recorded in last week’s report because of excessive rain and flooding. These fundamental price-supporting supply and demand factors fit nicely with the bullish technical chart assessment of the market, about which we recently reported.
Of course we are far from knowing the final harvest results from the Northern Hemisphere, and we don’t know the magnitude of crop price increases or when they will happen.
We are only confident that crop supply will not be as large as expected just a month or two ago.
However, factors outside the crop market can complicate the picture.
The continuing turmoil over Greece’s debts has markets fretful.
Greece is a small country and its food supply and demand has little impact on crop markets, but the potential for it to be forced to leave the euro currency bloc has financial markets on edge. Whenever there is uncertainty, money flows into the relative safe haven of the U.S. dollar.
That makes it more expensive for other countries to buy U.S. commodities and so weighs on the price of those commodities.
Markets were also concerned about the recent sharp slide in China’s stock markets and the government emergency response on the weekend to free up capital to put into the stock market.
Some analysts worry that investment losses from the stock market slide will lead to reduced Chinese consumer confidence, which would further slow economic growth.
Unlike Greece, China is a major commodity importer, including crops and meat, and so any instability there is troubling.
darce.mcmillan@producer.com
