Canada Markets

Weekly USDA ratings for the United States spring wheat crop as of May 24 show the spring wheat crop emergence ahead of last year and the five-year average, as indicated on the attached chart. While the western States of Washington and Idaho are rated closer to the emergence seen in recent years, the other four states are significantly ahead of recent years. Across the six states, 80% of the crop has emerged, which compares to 40% last year and the five-year average of 54%.

The rapid pace of planting coincides with a rapid shrinking of the dryness faced in some of these states. For example, the U.S. Drought Monitor map showed 73.68% of North Dakota was rated as abnormally dry and 21.14% was rated as facing a D1 or Moderate Drought as of April 7. This situation has improved each week since, with last week's data indicating 26.58% of the state facing abnormally dry conditions. The U.S. Perspective Planting report suggests that North Dakota will plant roughly 49% of the U.S. spring wheat.

A similar improvement was seen for Minnesota, with May 19 data showing 43.76% of the state abnormally dry and 49.98% facing Moderate Drought conditions, after recent weeks showed almost 40% in the D2 or Extreme Drought. South Dakota has also seen a significant shift from D1 and D2 drought to a D0 or abnormally dry, while over 42% of the state is facing no dryness, as compared to close to 100% just weeks ago.

The early start to the spring crop combined with the shrinking drought in the HRW growing areas along with winter wheat condition ratings well above last year have made noncommercial traders nervous whose selling has weighed heavily on wheat prices in recent sessions, with SRW futures down 6.6% in the past three trading days, HRW down 6.3% and HRS ending down 5.6%, while breaking below the support of their respective 50-day moving averages and 20-day moving averages. DTN Analyst Todd Hultman discusses further the love/hate relationship between commodity investors and grain farmers in his weekly blog which should be available tomorrow.

Worth watching may be the changing relationship between HRS futures and HRW futures. Given the relative qualities of the two classes, the spread between the two can be used as a proxy for the demand for protein. Just weeks ago, the drought in the Southern U.S. Plains would lead to expectations for a high protein HRW crop which would weigh on the prospects for spring wheat. Since the beginning of April, the July HRS/HRW spread has moved from 14 1/4 cents to today's 33 3/4 cents/bu (HRS over HRW). In the same period, the new-crop December HRS/HRW spread has moved from 9 1/4 cents to 30 1/2 cents today. A test of chart resistance may soon take place, with the April high for the July contract at 37 3/4 cents and the April high for the December spread at 33 cents (HRS over HRW). This can be compared to the 2014/15 mean spread on the continuous contracts of just 3 cents/bu.

DTN 360 Poll

The new DTN 360 poll looks at Statistics Canada's acreage estimates for 2015 suggesting that eastern Canada will plant more corn and less soybeans than in 2014, counter to the expected move to be made by U.S. farmers. What do you think is the primary driver of this decision? You can weigh in with your response on DTN's poll found on the lower right of your DTN Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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