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All Eyes On The Weather

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Grain and oilseed prices at the ICE Canada futures market are mixed since my last column. Canola posted gains in the wake of big advances in the Chicago soy complex and talk of Chinese canola bookings. However, it turned out that China booked Ukrainian rapeseed and that trimmed canola prices.

Improved weather also weighed on prices, although lingering frost concerns were not far from traders’ minds and that helped to underpin the market. Farmer selling was also slow and that gave some support, offsetting commercial selling. Trading volumes picked up but were still not heavy. Exporters and crushers were buyers while commercials were selling with some light elevator company offerings noted. There was also selling out of Europe.

Western barley futures fell sharply as the cash market dropped back and demand was lacklustre with the import of U.S. dried distiller grains limiting the interest from end users.


Chicago corn and soybean futures were mainly higher with soybeans seeing strong gains and corn seeing modest advances. There was considerable positioning ahead of the Aug 12th USDA supply-demand reports. Soybeans rallied as exceptional export demand lifted the market with China continuing to be a big buyer. There was some small support from weather forecasts calling for hot, dry stressing conditions for soybeans as it enters its podding stage. However, as time progressed the forecasts indicated that the heat would not stay around very long and selling followed in the bean pit.

Corn futures generally firmed on the very strong export pace and signs that ethanol demand for corn is also rising. However trimming the market back was continued talk that the U.S. corn crop would be huge, with record yields. The heat forecast for the U.S. Midwest was felt to be beneficial for the corn crop as it would bring badly needed heat units.

U.S. wheat futures tumbled as the lack of strong export interest in U.S. wheat and the favour-able outlook for the U.S. spring wheat crop weighed on values. Ideas that global wheat supplies are adequate also pressured the market. However, there are some concerns about weather and the global wheat crop with dryness an expanding problem in Argentina, Australia and the Black Sea area.

These markets have been dominated by Wednesday, August 12th’s USDA supply-demand reports. My column deadline, unfortunately, is ahead of the report and so today we can only look at the attitudes in the trade ahead of the report. I will deal with the numbers in the next column.


The report has more potential impact than normal on the market outlook as it will include the resurvey of Midwestern farmers to get a stronger idea about corn acres. This report also frequently has contained major market “surprises.” The expectation was that this report will show corn acres will be down about a million acres, but that record-high yields will offset that and production will actually be higher.

Ahead of the report, several private forecasts were issued with the most significant coming from Informa Economics. It pegged the corn yield at 157.1 bu./ac. for a total crop, based on Aug. 1 conditions, estimated at 12.554 bln bushels. Informa then went on to say that if weather is normal and the crop has no significant heat or frost problems the “final” yield would likely be 164 bu./ac. for a total crop of 12.991 bln bushels.

With U.S. consumption likely to be about 12.6 bln bushels, their August forecast is neutral to the price outlook. However, should their “final” crop estimate turn out to be accurate, then the corn outlook is bearish and we will see corn futures below the US$3/bu. level.

Of course, there are a lot of “ifs” in their second forecast. With the crop as much as six weeks late, frost is a much higher threat this year. In addition the acreage is going to be very significant.

Informa forecast the U.S. soybean crop at 3.177 bln bushels with a yield of 41.6 bushels. If weather conditions are not threatening, they forecast the “final” crop at 3.322 bln bushels with an average yield of 43.5 bushels per acre.

If the August estimate of 3.177 bln is accurate, then the outlook is friendly as ending stocks will be lower. If the higher number is accurate then the outlook is bearish as ending stocks will climb and U.S. soybean futures will likely drop back to the $8/bu. level.


Like the U.S. soybean crop, canola is at a critical juncture. In July, the grain trade was carrying an estimate of about 9-9.5 mln tonnes for the crop. The arrival of warmer conditions in August has brought a little more optimism to the outlook, but only a few have revised their forecasts up to the 9.5-10 mln tonne level.

With canola consumption likely to be over 11 mln tonnes, whether the crop is nine mln tonnes or 10 mln tonnes, ending stocks will drop to tight levels and prices will be firm. If U.S. soybeans falls to $8/bu., canola will still hold a $1/bu. premium to soybeans.

However with all the weather uncertainty in oilseed markets, there is equally a chance for U.S. soybeans be trading in the $11-$13/bu. range this winter and canola prices would still hold their $1 premium.

Currently, we have the uncertainty of a late U.S. soybean crop in a year that has not been normal, weatherwise, for the Midwest. For both corn and soybeans, we will have to see a second year of a much later than normal frost. In addition the monsoon has been erratic in India and that is already lifting vegetable oil and pulse markets. While in the South Pacific, a building El Nino is threatening the palm oil crop.

El Nino has a mixed impact on the South American soybean crop. Acreage is expected to be up to record levels in Brazil and in Argentina. El Nino tends to bring very heavy rains, which may be good for the crops where dryness has been a concern. However, in the past it has been equally negative for the crop as the rains associated with El Nino have washed out the crop.

As you can see, this crop is hardly made and the price outlook is still very very much an uncertainty.

– Don Bousquet is a well-known market analyst and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.

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