The Good: The canola market shrugged off the macro trade today and focussed on real things – like the weather. The Manitoba and Saskatchewan crop reports (see the Ugly section) confirmed the deterioration in crop conditions from last week’s hot, dry weather. The November canola futures contract closed the day at C$814 per tonne. This gain came despite a drop in soybeans and soybean oil futures. Soybean futures were down seven to eight cents per bushel in trading today, while soybean oil futures were off 0.85 to 0.9 per cent on the day. Canola futures can trade independently from the soybean complex as the market tries to determine how short the Canadian canola market will be this year.
The Bad: Spring wheat markets should have followed the canola markets higher. The crop conditions continue to deteriorate in the Northern Plains and production will be down significantly from last year. The millstone (pardon the pun) around the neck of the spring wheat market is the ongoing harvest of winter wheat in the Southern Plains and Corn Belt. This harvest pressure is keeping Chicago and Kansas City futures in check and the market is reluctant to increase the spread between the spring wheat and the winter wheat markets. The USDA will release their estimates of crop production on Monday, but the change in white winter wheat, spring wheat and durum production is likely to be partially offset by increased HRW and SRW production. This will cause a drag on the spring wheat market until the harvest pressure is finished in about two weeks.
The Ugly: It there was a theme to the Saskatchewan crop report this week it was that yield potential dropped dramatically during the past week. The reason is quite simple – record heat and mostly dry weather has caused the crop to go downhill in a hurry. The map below shows the reason why. Most of the province has received less than 150 mm so far this spring. A significant portion of the province has received less than 100 mm. That gives you an average monthly precipitation between 25 and 50 mm, which is about half of normal. The moisture deficits so far since April 1st are mostly in the 50 to 150 mm range. You can’t grow and average crop with above normal temperatures and half the normal precipitation!