WESTERN PRODUCER — Grain markets are focused on three issues: the potential for extreme summer heat, changes in interest rates and currency exchange and hopes that Ukraine will be able to resume crop exports by sea.
In the U.S. Midwest and Canadian Prairies the cooler than normal weather is shifting to hotter than average conditions for the rest of the growing season, if the forecast models prove correct.
Crop conditions vary widely across the continent, but when averaged, national yields have the potential to be near normal.
Warmer than normal conditions might help delayed crops to catch up, and if the warmth extends into fall as forecast, then that obviously would be good for harvest.
But much depends on how hot it gets in the coming weeks and whether rain will arrive in the quantities needed to maintain yield potential.
The models suggest drier than normal weather in late July and into August in the western part of the U.S. corn and soybean areas. If that turns out true, crop stress would mount.
Models are kinder to the Canadian Prairies, with most suggesting close to normal rainfall during the rest of the growing season.
Meanwhile, much of Europe is sweltering. The heat is speeding up the winter wheat harvest, but could harm the corn crop, which is still growing.
Strategie Grain consultancy last week estimated the European Union’s corn crop at 65.4 million tonnes, down from 66.8 million tonnes seen last month and 69.7 million last year.
Drought in Argentina is limiting wheat seeding. The Rosario Grains Exchange last week lowered its wheat forecast for the country to 17.7 million tonnes, down from 18.5 million forecast in June and last year’s 22 million tonnes.
But on the flip side of the coin, Russia’s winter wheat harvest is going well with stronger than expected yields. Analysts forecast a record wheat crop in Russia.
These issues and the outlook for a potentially stressful mid-to-late summer in the United States only modestly affected crop futures markets last week, which were focused more on the fight against inflation and fears of recession that would damage demand.
Recession fears drove grains and the rest of the commodity markets sharply lower over the past two month.
Cheaper energy and commodities will eventually help cool the inflation fire, but for now it burns bright. American year-over-year inflation ran at 9.1 percent in June. Canada’s rate for June will likely be similar when released July 20.
In a “shock and awe” move designed to smother the inflation flames, the Bank of Canada boldly raised its benchmark interest rate by 100 basis points last week, to 2.5 percent from 1.5 percent.
Market watchers expect the U.S. Federal Reserve will implement a 75-to-100-point increase when it meets late this month.
The Bank of Canada’s aggressive increase was also designed to support the loonie, which, like other currencies, is falling as investors shelter in the safety of the U.S. buck.
The loonie fell to less than 76 cents U.S., the lowest in 20 months.
But that is a good performance when compared to the euro, which is trading at a 20-year low relative to the greenback, the South Korean won, which is at a 13-year low, and Japan’s yen, which is at a 24-year low.
Indeed the U.S. dollar index, a measure of the value of the dollar relative to a basket of competing currencies, is at a 20-year high.
Weak currencies drive up the cost of imported things while strong currencies discourage exports.
The U.S. posted a strong weekly export report for wheat last week showing its prices have become competitive. But if the strong U.S. dollar stifles American grain exports in coming months, it would be a downward pressure on U.S. crop futures markets.
Another factor affecting crop prices is the strongest sign yet that there will be a deal to allow Ukraine to export grain by sea.
Last week, Turkey said it had a deal with Ukraine, Russia and the United Nations and that it expected the parties would formally sign an agreement this week.
If that happens, it will likely take many weeks or months to get grain moving, but once details are worked out it would see Turkey working with the parties to ensure the safety of the shipping route and helping to co-ordinate and check the grain exports.
About 22 million tonnes of Ukraine grain is stuck at facilities in Odessa on the Black Sea, with the port unusable because of threatening Russian warships and a defensive Ukraine minefield.
