USDA’s latest production bullish for grains; bearish soybeans

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The ICE Futures Canada canola market saw some choppy activity during the week ended Jan. 11, as positioning in the U.S. ahead of a much-anticipated production report kept some uncertainty in the Canadian market as well. The U.S. Department of Agriculture’s final production numbers for the 2012 growing season were released Jan. 11, along with updated supply and usage projections. When the dust settled, canola, soybeans, corn and wheat were all higher for the most part, although soyoil posted losses on the week.

While the actual numbers contained only minor adjustments from previous estimates, the immediate response to the report was bullish for the grains but a little bearish for soybeans. The U.S. wheat contracts saw the largest price move in response to the report, as seeded acres were not as big as market expectations. U.S. wheat stocks at the end of the current marketing year, May 31, were also forecast to be tighter than most traders had anticipated.

After dropping steadily for all of December, the wheat market was looking for a reason to correct higher. That catalyst finally came with the January USDA report. Whether or not the bounce can be sustained remains to be seen, but the fact remains that wheat posted its first weekly gains since late November.

U.S. farmers planted 41.8 million acres of winter wheat this past fall for harvest in 2013, according to USDA. That represents a one per cent increase from the previous year, but average market guesses had been for a three per cent rise. On top of that, what’s in the ground continues to be hampered by drought conditions across much of the U.S. Plains, which will likely hamper yields.

U.S. wheat exports have been admittedly lacklustre to date, as the country faces stiff competition in the international market. However, ending stocks are still forecast to be on the tight side at only 701 million bushels. That compares with a previous estimate of 754 million. More wheat is said to be finding its way into feed rations.

Corn carry-out revised

The corn numbers included an increase in 2012 yields, due to improved yields, but a decrease in ending stocks. The carry-out for the current marketing year was revised lower due to an expected increase in domestic consumption. Corn ending stocks are now forecast at only 602 million bushels, which compares with 989 million at the close of the 2011-12 marketing year.

However, export demand also remains poor for corn, especially as end-users are now anticipating the cheaper South American supplies soon to be available.

For soybeans, the USDA report could be seen as a little bearish, as U.S. soybean production in 2012 came in above trade guesses at 3.015 billion bushels. Export demand is firm for the commodity, but as in corn, South America’s large crop will soon be displacing the U.S. in the international market.

For Canada, the canola market bounced around in sympathy with its U.S. counterparts for the most part during the week, but remains well supported by its own fundamentals.

Tightening stocks remain a concern across Western Canada, with end-users still looking to secure supplies before they run out. The latest Canadian Grain Commission data, as of Jan. 6, shows visible stocks held in commercial hands have declined to 879,200 tonnes, from a million the previous week and 1.5 million at the same time in 2012. Crushers and exporters continue to work at a solid pace and, depending on the location, are offering good basis opportunities to keep operating.

The best basis can be found in southern Manitoba, but with crush margins at very weak levels, it’s uncertain how long those opportunities might last.

About the author

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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