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The harvest markets are awakening in the face of the unfolding drought

The catastrophe in the northern part of the grain belt of this continent is finally making itself felt on the futures markets for plants.

A few weeks ago I found that while trade was concerned about dry, hot weather in the northern area, good harvest of hard red winter wheat in Kansas and Oklahoma and good moisture in many, but not all, of the corn – and soybean-growing countries.

But since western Canada and the northern US plains endured another week of temperatures above 30 ° C and almost no rain, the developing disaster takes precedence.

Canola futures, often heavily influenced by the soybean oil market, are now the driving force as the December contract soars above $ 900 a ton. That is an unprecedented price for a crop that has yet to be harvested.

That pushed soybean oil close to its previous all-time high of 2008 by the end of last week.

Minneapolis’ hard red spring wheat futures market, which surged above $ 9 a bushel last week, appears to have freed itself of the restrictive effects of the red winter wheat and corn contracts.

Trade was rocked by the US Department of Agriculture’s monthly supply and demand estimate, dated July 12, which put US spring wheat production at just BU 345 million, a 41 percent year-over-year decline.

Durum wheat was at 37.2 million bu. or 1.01 million tons, a decrease of 46 percent compared to 2020.

The news was partly supported by the USDA’s estimate of hard and soft winter wheat production at 1.36 billion bu. balanced, four percent more than forecast in the previous month and 16 percent compared to 2020.

The USDA estimated total US wheat production at BU 1.746 billion, eight percent less than in June and 4.4 percent less than last year.

U.S. spring wheat and durum wheat crop estimates are likely to fall in the coming months to reflect the ongoing drought and the increased amount of crops being harvested for feed rather than grain.

The pre-sowing durum harvest forecast for western Canada was six million tons. This expectation must now be reduced.

Statistics Canada’s first grain production forecast will not arrive before August 30th and reflects harvest conditions in July.

Europe and North Africa have improved durum cultures and therefore their imports were expected to decline in 2021-22. But now there will likely be little durum to import from North America anyway.

Oats are also badly hit by the drought.

The USDA’s July 12 report estimated U.S. oat production at BU 41.3 million, a 37 percent year-over-year decrease due to a combination of lower sown area and lower yields. This was the smallest oat harvest on the USDA’s records.

December oat futures for new harvests on the Chicago Stock Exchange hit $ 4.40 a barrel at times last week, their highest level since March 2014.

Looking over North America, SovEcon cut its forecast for the wheat harvest in Russia last week to 82.3 million tons, 2.3 million tons less than last month. The consulting firm IKAR put the Russian harvest at 81.5 million tons.

Kazakhstan, which produced 14.3 million tons of wheat last year and exported eight million tons, is now also suffering from drought.

The USDA cut Kazakhstan’s wheat crop to 13 million tons in 2021-22 and exports to 7.5 million tons, but this is likely to continue to decline in upcoming reports.

As I mentioned earlier, adequate growing conditions in large parts of the corn and soybean growing area of ​​the American Midwest had a price-dampening effect on all crops.

But the US corn and soybean crop ratings are far from impressive.

The percentage of US corn and soybeans rated good to excellent on July 11 was each several points below the 10-year average.

These unimpressive ratings make me wonder when the USDA needs to start slashing its current average corn yield forecast from a record high of 179.5 bu. Per hectare.

Another major global corn producer and exporter is Ukraine, which had good growing conditions until mid-July but was expected to experience drought in the second half of this month, which could affect the harvest there.

And I believe that the global corn balance does not fully take into account the weak second corn crop in Brazil.

The USDA has a total Brazilian corn production of 93 million tons, but several domestic analysts estimate it will be less than 90 million. Soybean and Corn Advisor’s Michael Cordonnier predicted a harvest of 88 million tons last week, but said the number would likely be lowered in the coming weeks as the number of droughts and frosts becomes clearer as the combine harvester increases.

Finally torrential rains hit western Germany and Belgium last week, but the extent of the agricultural damage was not yet known.

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