Rain on grass

The merry-go-round that is the weather market remains firmly in place. After last week’s WASDE fireworks, the weather forecast flipped to a cooler, wetter system and the ag commodities came crashing back down to earth. The change in weather conditions across the US Mid-West is ideal for row crop development and flowering/silking.

Models are chopping around a bit, but most of Minnesota, North Dakota & South Dakota (MN, ND & SD) as well a fair portion of the Canadian Prairies had been forecast to get a drink. (Note that the most recent run shows ND, southern MN and Iowa getting wet, but much of the Canadian Prairies remain dry).

This week looms as a critical one for Canadian crop potential.  After a week of abnormally hot temperatures, the crop is at a tipping point. It is evident that a lot of spring sown crops have already suffered – wheat losing tillers, scorched flag and running up small heads, canola aborting immature pods.  At the start of the week, we saw $30/t wiped from the ICE canola contract, demonstrating the huge risk premium that had built up over the past week.  However, as the forecast reverted to a drier pattern, that premium has been steadily building up again.

Russian and Black Sea crops continue to track along in favourable conditions.   SovEcon again raised forecast for production and exports to 84.6mmt and 38.4mmt respectively.    Starting yields in Russia’s south are around 3.1t/ha (down 3% yoy) but it is early days.  There remains a drought watch on parts of Russia spring wheat crops, but the winter wheats in the south and central Russia are expected to be excellent.

One area that needs watching is Parana (Brazil) which after a drought is now experiencing frosts in a sub-tropical climate.  Corn maturity is ranging from dough stage to early dent, with the former at most risk of damage.  It is hard to pin down exact numbers for potential losses or what the current production estimate is, but expect further downside.

The week ahead….

Wheat will continue to follow the corn and bean markets, so while the US Mid-West looks like getting a decent rain, we may see some more downside.  But I don’t think this weather market is over yet.  Analysts are starting to trim back Canada’s wheat and canola crops and I don’t think they have finished.

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Data sources: USDA, Reuters, SovEcon, Left Field Commodities

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