Grain markets this week were up and down with the close of one month, the transition to a new front-month contract, and trade limits changing on the exchanges. Also affecting things were the U.S. Wheat Quality Council’s winter wheat crop tour in Kansas and some violent weather in the Delta. All in all, if there’s one word to characterize this week it’s volatility (as suggested last week in Planting Begins and, With It, Volatility). Soybeans are down from last week as multiple cargoes of South American soybeans are expected to make American landfall over the next few months. Canola prices improved as exports are starting to pick up. Corn prices found some strength earlier in the week but have since fallen off as it battles technical levels of resistance to keep it from heading higher.
Heading into May, planting activity continues to be hampered by wet and cold weather across North America. While most of the U.S. Midwest receives erratic shots of rainfall, dry conditions continue to affect the U.S. Plains, the main region for winter wheat crops. Recent crop tours in Kansas and Oklahoma are putting this year’s crop average yield at around 33 and 18.5 bushels per acre respectively. Aggregately, this would translate to an output significantly down from last year with less than 260 million bushels produced in Kansas and less than 66 million bushels in Oklahoma. These numbers could fall even further if the area doesn’t get some good rains in the next two weeks (many fields could simply be written off). Conversely, while good rains in the Eastern U.S. Cornbelt have slowed planting progress, the reality is, the soil moisture conditions are excellent. This in mind, the bearishness of another large corn crop could likely offset some bullishness of a poor U.S. winter wheat crop.
Keeping with this theme, major wheat producers around the world aren’t feeling the same problems as the U.S. winter wheat crop & growing conditions are mostly good (especially in the E.U. with some good rains in the forecast). Speaking of the E.U., it appears they’re back in business of buying Canadian flax, just five years removed from the Triffid issue in 2009. Between China and the U.S. buying about 400,000 tonnes, pulse company Legumex Walker is expecting the European bloc of countries to purchase about 200,000 tonnes of the oilseed. This could potentially put this marketing year’s flax ending stocks below 100,000 tonnes. No surprise then that 2014/15 flax acres are expected to increase in both the U.S. (+80 per cent to 326,000) and Canada (+66 per cent to 1.72 million).
It’s possible that the delivery of these purchases to the E.U. could be delayed even further as roughly two-thirds of Lake Superior is still covered in ice, making movement of grain from Thunder Bay to the St. Lawrence Seaway extremely slow-going. Currently there are 20 ships sitting at the Port of Thunder Bay waiting to load grain and while volume is expected to pick up over the next three weeks, ice-cutter escorts are still required. While ships may be slow getting out of Canada, they are coming into the U.S. full of Brazilian soybeans. As credit restrictions are forcing Chinese buyers to default on South American soybeans, a lot of these loads are being rerouted to the U.S. (two cargoes so far with another six ships in transit or getting loaded). Thus, the trade is expecting 2013/14 U.S. soybean imports to surpass 2.3 million tonnes (U.S.D.A.’s estimate is 1.77 million). Food for thought: there could be demand for more soybeans south of the Canadian border not only this year but for the foreseeable future as America’s demand for the oilseed seems to outpacing its ability to allocate its production efficiently.