Grain markets had an incredibly volatile finish to June as government acreage estimates for both Canada and the U.S., combined with ongoing drought concerns, sparked soybeans to a green finish, corn nearly lost a full dollar, and wheat followed the latter lower. As an indication of this week’s heavy activity, corn and soybean volatility indexes rose to their highest level since last July, with corn, for example, seeing a $1.36 USD/bushel swing in just the last two weeks alone (for reference, in the past four decades, the average trading range over the entire crop year is $1.50).

Also influencing the trade this week was weather, as some decent rains helped fuel heavy selling earlier in the week, but a derecho storm with 100 MPH winds hit a healthy portion of the Corn Belt, downing many corn and soybean fields, and likely 10 – 20 per cent of final yield in these areas. This is on top of the reality that it’s now estimated that 70 per cent of American corn fields and 63 per cent of soybeans are in a state of drought, up from 64 per cent and 57 per cent last week, respectively. This explains why the USDA’s last crop condition report for June showed 50 per cent of the U.S. corn crop rated good-to-excellent (G/E), the lowest since 1988, while soybeans 51per cent G/E rating is also the lowest since 1988. Ultimately, this drought is the main reason why we saw such a positive return for most crops in June, save for corn, whose Friday sell-off meant a negative monthly performance.

Simply put, Friday’s trading activity was very heavy, as the USDA surprised the market with numbers that not a single analyst had in the pre-report guesstimates. U.S. corn acres were raised by 2.1M to 94.1M, which was above the trade’s range of guesstimates, up 6 per cent year-over-year, the largest total since 2013, and the third largest amount of corn planted in the U.S. since 1944. For soybeans, the shock was just as heavy as the USDA dropped their forecast by 4M acres, or 5 per cent, from their March estimate, leaving very little room for production issues in terms of how tight the 2023/24 balance sheet could be. The reason for the dramatic change was likely attributed to early spring and rapid planting in states not named the Dakotas or Minnesota, as North Dakota lost an estimated 900,000 acres of soybeans alone (and it also helps explain the big jump in spring wheat acres, discussed next).

For U.S. wheat, a total of 49.63M is a small drop from the March estimate, and the decline was largely attributed to less winter wheat and durum but more spring wheat. Montana and North Dakota saw a combined 310,000 acre decline in their planted durum area, but a 600,000-acre combined increase in spring wheat area. On the flipside, for winter wheat, using best available yield data, it’s likely that the combined Kansas and Oklahoma winter wheat crop will be the smallest since 1957.

Moving north, on Wednesday last week, Statistics Canada provided its own updated acreage estimates, which showed that Canadian farmers will plant their largest wheat crop since 2001 as roughly 27M acres got drilled with some variety of the cereal for the 2023/24 crop year. This is a jump of more than 1.6M acres year-over-year, with almost all of the increase attributed to the extra 1.44M acres of spring wheat that StatsCan is estimating got planted, and a large reason behind Minneapolis new crop spring wheat futures losing more than half a $1/bushel last week. Compared to the March estimate though, the only substantial change for the wheat complex was Albertan and Saskatchewan farmers planting more spring wheat than durum.

More broadly in the StatsCan acreage report, canola found nearly an extra 500,000 acres from its March estimate, while oats area dropped by more than 500,000 acres, which seems to be accurate based on the farmer feedback I’ve received. Save for chickpeas and edible beans, all pulses and specialty crops saw even lower areas than the March report, indicating to the market that the pullback in prices for many of these crops, combined with dry conditions in many areas where they’re grown, was too much of a gamble to take relative to the ROI for wheat, barley, and canola.

On that note, wheat crops are looking pretty good in Manitoba and Saskatchewan, but trending a bit poorer the further west you go, with earliest-seeded fields showing the most stress, especially in southwestern Saskatchewan. Rainfall this week hit most of the Canadian Prairies, which should certainly help a few fields and probably nowhere is a rebound needed the most through than in Alberta, where just 45 per cent of spring wheat and 47 per cent of durum crops were rated in G/E condition. This is a significant decline compared to the 82 per cent and 63 per cent G/E ratings, respectively, seen at the same time a year ago for the Wild Rose province’s wheat crops, and it’s even worse than the drought harvest of 2021, when spring wheat had a G/E rating of 71 per cent and durum was 48 per cent at the end of June.

Overall, this last week of June provided us a great lesson in that, rallies can disappear often just as quickly as they show up. This was more concretely evidenced at the beginning of the week with the heaving selling, as traders are not going to wait to see just exactly how much of an area got the rains they needed, but instead take their profits and head for the door (especially before the month and calendar quarter ends, and a long weekend). Demand remains an issue for expensive U.S. grain and that should hang over the drought and weather premium discussion, but still not too pricey for feedlot alley to already have booked nearly 80,000 MT of new crop U.S. corn, three times as much as they contracted by this time a year ago. I expect that with the start of July, Canadian wheat markets will be most moved by weather, the Black Sea Grain Deal that’s more and more likely not going to be renewed on July 17, and the strike by B.C. port workers (which could be very detrimental to Canadian grain movement if the strike is still happening by next week’s Wheat Market Insider column).

To growth,

Brennan Turner

Independent Grain Markets Analyst