Alex Norton, Beeson Inc.
The negotiations on the North American Free Trade Agreement continue between Canada and the U.S. There have been several roadblocks that keep the two sides from coming to an agreement ahead of the end of September deadline. Note that the end of September deadline is one that was put in place by the Trump administration. The thought is to get a deal done before the new Mexican president is put into office at the end of the year.
Market pressure has been the story for wheat (and many other commodities) for the last several weeks. Tariffs and trade concerns with the U.S. have pushed prices lower. On top of that, weather in the U.S. and most of Canada has been good, increasing expectations for good crops (generally). Speculative funds were getting shorter and the markets could not hold up against the bearish pull lower.
Despite Independence Day in the U.S. closing markets on Wednesday, the impact of the weather, trade outlook, and the government reports on acreage in the U.S. and Canada have given enough fodder to keep agricultural commodity markets on edge. First off, weather in the North America is hotter than usual, raising some concerns for crops in the long term outlook. Plenty of rain has fallen in the past few weeks (except for the U.S. Central Plains that remain in a severe drought), so crops are thriving despite the heat.
Commodity prices have plummeted with the U.S.'s ongoing trade disputes with China, the European Union, Mexico and Canada. Monday's declines were brought on by President Donald Trump's announcement of another round of tariffs on Chinese goods totaling $200 billion.
The weekly Crop Progress and Conditions report from the U.S. Department of Agriculture showed that the U.S. corn crop is in very good shape in the early going. Seventy eight percent of the crop is rated good or excellent, and just three percent falls in the poor or very poor condition category.
Late in the week, Statistics Canada released planting plans by farmers for the 2018 crops. Much like the Prospective Plantings report released by the U.S. Department of Agriculture at the end of March, this report sets the stage for potential production of major crops in Canada. The market's pre-report estimates and expectations set the stage and actual data compared to those reports shape the market direction that day. For example, canola acreage was huge in 2017, and the market expected another increase in 2018.
While most of the rest of the world has been trending warmer, the U.S. has been hit with colder-than-normal temperatures. Any glance at a weather map shows the incredibly bitter temperatures for the entire country. While this has its impact on the day-to-day lives of people dealing with snow, school closings and slippery roads, one must not forget the impact on crops. Of course, the primary growing season is not for months, but the winter wheat crop likely suffered some winterkill as a result of the extreme cold. Prior to the cold, weather had been generally warm.
The Farm Journal Midwest Crop Tour (formerly ProFarmer) is an annual event that grabs the agricultural commodity market's attention as crop scouts sample fields all across the Corn Belt for a first-hand look at the soybean and corn crops. Scouts come from all backgrounds (journalists, farmers, traders, exporters, etc.) and from all over the U.S. (as well as Canada, South America, Europe and Asia) to participate. There are two legs, covering the Eastern and Western Corn Belt, and they converge in Minnesota on the final evening.
An update from the Canadian government on its outlook for old and new crop gave the markets plenty to digest, this week. Old crop durum stocks were higher on good output, though much of the crop was of lower quality. For 2017-18, planted area declined 16 percent from a year ago, and production should fall even further as yields return to trend following last year's boom. Barley production and area are down as large carry-in stocks prompted producers to choose an alternative crop.
It has been quite a while since there has been any significant weather problem in the U.S. impacting crop growth. Going back to the disaster in 2012, widespread heat and dryness impacted corn, soybean, wheat and all crops across the country. Unlike that awful summer five years ago, 2017 has been marked (so far) by a very distinct area of hot and dry weather. A look at the U.S. Drought Monitor highlights just how bad things are in North Dakota and eastern Montana, while the rest of the country has very little moisture problems. Only parts of South Dakota and Nebraska even come close.