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USDA Corn And Soybean Reports Shake The Markets

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Grain and oilseed prices at the ICE Canada futures market dropped sharply lower since my last column as declines in the U.S. soy market and the firming Canadian dollar undermined values. Canola was pressured down by slower demand, increased farmer selling and bearish technical signals that triggered speculative selling. Western barley posted losses in small volumes as the lack of demand weighed on values. Commercials were the main traders.

Chicago corn and soybean futures were lower as soybeans were undermined by the favour-able outlook for a record-large South American soybean crop and signs that China was shifting its soybean buying away from the U.S. and moving it to South America. Corn futures initially posted gains on expectations that the Jan. 12 USDA report will reduce the size of the U.S. corn crop. However when the USDA report was released it showed more U.S. corn and that sent prices down.

U.S. wheat futures saw moderate gains early, but had turned lower by our print deadline. The main early support came from talk that index funds would be aggressive buyers of wheat as they rebalance their positions. Also giving support to the market were expectations for lower U.S. winter wheat acres in the Jan. 12 USDA winter wheat report. However, the large wheat supply in the U.S. weighed on the market.


The USDA reports brought lots of fresh news to the market and most of it was negative.

The friendliest news came for wheat where the all-winter wheat acres came in at 37.097 mln acres, well-below trade guesses and below last year’s 43.311 mln acres. In fact this is the lowest winter wheat acres since 1913 and the lowest on record in many key states.

What this means is that down the road we will start to see a turnaround in the U.S. and global wheat markets as supply declines. However before that, the market will have to deal with the fact that the U.S. 2009-10 ending stocks will hit 976 mln bushels, well above trade guesses and last year’s 900 mln bushels.

Globally, the 2009-10 ending stocks were pegged at 195.6 mln tonnes, up from the December estimate of 190.9 mln tonnes.

These numbers suggest that wheat prices will initially decline with the corn market, but that eventually wheat prices will see a resurgence which should pull wheat futures to solid highs.

The most negative piece of news came for corn where traders were looking for the report to lower 2009 U.S. corn production because of the delayed harvest and poor weather. USDA actually raised the size of the 2009 crop to 13.151 bln bushels, higher than the highest trade guess and up from Dec.’s 12.92 bln bushels.

The result was higher 2009-10 corn ending stocks at 1.764 bln bushels, up from Dec.’s 1.675 bln. To keep the ending stocks from growing more, USDA raised the demand side which many traders feel is “fudging” and that ultimately we will see higher U.S. 2009-10 corn ending stocks.

The feeling is that we will see U.S. corn futures drop back to the US$3.75/bu. and some feel that $3.50/bu. is also a possibility.

While this is bad news for the barley outlook, it does appear to be setting things up for improved profitability for the livestock industry.


While USDA’s numbers were bearish for soybeans, they were not unexpected as most traders forecast an increase in the size of the U.S. 2009 soybean crop. USDA estimated the crop at 3.361 bln bushels, well above trade guesses and up from the Dec. forecast of 3.319 bln bushels.

USDA forecast 2009-10 U.S. soybean ending stocks at 245 mln bushels, actually down from their Dec. estimate of 255 mln bushels. The strong export demand, mainly from China, accounted for the drop in ending stocks.

However, globally, USDA pegged ending stocks at 59.8 mln tonnes, up from their Dec. estimate of 57.09 mln tonnes due mainly to record production in Brazil and Argentina.

This provides a bearish backdrop to the canola market and suggests that we could see lower prices.

China’s move to increase interest rates seems to confirm that the government is uncomfortable with the country’s inflation level and want to drive it down. This will mean lower demand for oilseeds.

This is not the end of the world for canola as China has not been a particularly consistent buyer of canola in the past. However it will likely mean that canola supply will be very large this year and that ending stocks in 2009-10 will be building.


The crush pace continues to move along at a rate that is 100,000 tonnes behind last year despite the fact that Canadian canola meal is still having problems getting into the U.S. due to salmonella contamination. You would expect to see this number increase more if the crush pace was dropping off.

So how much canola are we likely to have left over at the end of the 2009-10 crop year? Initially it was felt that ending stocks would be as low as 750,000 tonnes on production of 10.3 mln tonnes.

However as the production number was revised higher, ending stocks were also revised up. On top of that, demand was being reduced by China’s decision to not accept canola from Canada unless it could be certified as free from blackleg. The problem of canola meal sales to the U.S. also cut into the demand side.

Most analysts have revised their ending stocks up to the 2.0 mln to 2.5 mln tonne level with some actually talking about ending stocks of three mln tonnes.

This will be very bearish for the market as ending stocks of this size would definitely push prices down well below C$400/tonne. Why aren’t we there yet?

The main reason is that the trade is not certain that things are as catastrophic as the “worst-case scenario” suggests.

Canadian Grain Commission statistics as of Jan. 3 provide a quandary for the market. Farmers have delivered 4.579 mln tonnes of canola in the 2009-10 crop year, actually above 4.518 mln at the same time last year. Exports are 2.968 mln tonnes, only about 100,000 tonnes below the 3.059 mln tonnes at the same time last year.

These numbers are not nearly as bearish as you would expect with sales of canola seed halted to China and an embargo on canola meal sales to the U.S. However, if these start turning increasingly negative and the South American soybean crop encounters no major problems then the oilseed markets are likely to see a fairly large decline.

How low can canola drop? It does look like canola could challenge its lows of about $380/tonne on futures. Depending on how low the U.S. soybean market declines, canola futures could drop as low as $350.

However, this is all star gazing and more than a few facts are going to have to fall in line to make $350/tonne canola a reality.



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