Better than expected growing conditions in the United States mean worse than expected prices for prairie farmers.
And even if the U.S. Department of Agriculture’s June 30 acreage report turns out too rosy about millions of extra corn and wheat acres, it’s going to be the short-term gospel for the market, analysts say.
“I think the USDA’s (wheat) acreage number is too big, but that’s what the market is going to trade,” said Mike Krueger of The Money Farm in Fargo, North Dakota.
USDA stunned the market by finding U.S. farmers seeded almost four million more corn acres and one million more wheat acres than expected.
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New crop corn futures immediately slumped the 30 cent per bushel limit and in the next couple of days dropped an additional 30 cents to $3.44 US per bu., and hard red spring wheat dropped from about $6.70 per bu. to $6.50 immediately and then tailed down to about $6.20 by late on July 6.
Soybeans were the exception, even strengthening after the report until other bad news July 6 knocked them. Old crop soybeans strengthened on the USDA stocks report June 30 that found very tight supplies.
Canola prices also waffled after the report, held up by the tight soybean stocks but capped by heavy vegetable oil stocks and good growing conditions in the U.S. Midwest.
“The one lead weight within the soy complex is the veg oils, and unfortunately that’s the one that influences canola the most,” said Ken Ball of Union Securities in Winnipeg.
Soybeans derive much more of their value from the meal, the prices for which have been rallying, while canola relies on vegetable oil prices, which are weak in North America, Ball said.
Biodiesel demand, which was part of strengthening oilseed prices last year and offered hopes for this year, is only about 30 percent of some predictions, causing a glut of veg oil.
“The veg oil complex remains a little heavy,” said Ball.
However, with soybean stocks tight and current prices resting on an assumption of big American crops, bad weather in the U.S. could quickly add value to Canadian canola.
“If the crop gets in any trouble, you would expect the soy complex to react abruptly,” said Ball.
The bigger than expected corn acreage and the good growing conditions are also hurting prairie barley prices, Ball said.
“U.S. corn has fallen enough that corn bought in North Dakota pencils out for southern Alberta,” said Ball. “We know some is already booked.”
Krueger, who works in the area worst affected by the saturated conditions in the Red River Valley, believes the USDA has underestimated the area left unseeded, especially to wheat, this spring.
“I think there will be another million acres (in future reports that the USDA finds) did not get planted.”
Wheat prices have taken a beating for a month now, but Krueger said there are as many bullish factors in the market as bearish.
Production problems in Canada and small acreage and drought in Argentina could generate a wheat rally later this summer, Krueger said.
“We sold wheat when prices were a lot stronger. We’re not chasing this market lower.”
