A Bit of A Predicament — This Week in the Markets

A conundrum. A quagmire. An imbroglio. Quite simply put, we’re in a bit of a predicament between some very wet conditions creating production concerns in Western Canada and the northern U.S. states, but also because the market it chewing through a neutral-to-bearish report from Statistics Canada on Friday, June 27th and a surprising USDA report on Monday, June 30th, 2014.

It’s extremely wet in a lot of areas across Western Canada thanks to the persistent rains the last few weeks. As we look to celebrate Canada Day amidst the rainfall, it’s pretty to look up into the sky at fireworks than it is to look into some of the fields out there, especially in southeastern Saskatchewan and southwestern Manitoba where over 60 cities, like Brandon, Yorkton, and Melville, town and rural municipalities have all declared states of local emergency. Not only is it wet, but it’s been windy too, potentially hurting those crops that have survived
the rains.

June 30th not only showcased the USDA report, it was also the end of the trading month and the trading quarter (which, for a matter of fact, was terr-uh-ble). For the second quarter of 2014, the performance of front month contracts in the grains market saw soybeans down almost 10 per cent, Chicago wheat and corn both down 17 per cent, oats down almost 20 per cent. Canola was the exception and ended up by about four per cent, but Minneapolis wheat was down nine per cent and Kansas wheat was down eight per cent. A fair amount of the drop happened on the last day of trading largely due to the bearish USDA report. The last trading day though definitely made its impact on most of these drops.

Let’s look more closely at the USDA’s world agricultural supply and demand estimates released on the last day of June (and the trading month and trading quarter). It created quite a stir as U.S. soybean acres were pegged at 84.8 million. This is up 11 per cent from 2013’s area well above the average trade guess of 82.15M acres. Further, this is a new record, surpassing the previous mark by more than 7.4 million acres! As for corn, pre-trade estimates were for 91.725 million acres but the USDA report pegs that figure closer to 91.6 million acres. Accordingly, this is the lowest acreage number for U.S. corn since 2010 but still the fifth-largest amount of land since 1944. While total wheat acres were up slightly from a year ago, the market focused on the big acreage numbers for corn and soybeans and accordingly, the expected large production, leading to a fall in market prices across the board.

On Friday, June 27th, Statistics Canada came out with their acreage estimates for what Canadian farmers put in this spring and there weren’t too many surprises. As expected, pulse and soybean acres have increased considerably from last year and lower cash prices are leading to a more diversified and calculated approach to get a return on investment. Specifically, soybean acres are up a total of 23.5% to 5.58 million acres, lentils acreage is up by 35.4 per cent to 3.24 million, and peas saw an aggregate increase of 21 per cent to 3.975 million acres planted. Total wheat plantings were lower by 7.4 per cent to 24.1 million while canola land planted barely increased over last year to 20.23 million acres. Overall, harvested numbers will likely drop with the last few weeks of wet weather and other general issues. While I still expect some weather premium to get priced in over the next few weeks, there will definitely be some levels to take advantage of – hoping for the worst crop conditions isn’t the best risk management strategy for your grain sales.

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