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New USDA Numbers Surprise Markets

For three-times-daily market reports from Resource News International, visit “ICE Futures Canada updates” at www.manitobacooperator.ca.

Canola futures on the ICE Futures Canada trading platform continued to trek higher during the week ended July 2. Steady domestic crusher demand, combined with weather worries across the Canadian Prairies, helped to stimulate the price advances. The continued refusal of producers to deliver canola into the cash pipeline was also seen as an underpinning price influence.

The upside in canola was slowed by stiff overhead technical resistance and the sell-off experienced in new-crop CBOT (Chicago Board of Trade) soybean futures.

The U. S. Department of Agriculture’s acreage and quarterly grain stocks reports had opposite impacts on the price direction of CBOT soybeans and corn.

Corn futures at the CBOT moved up their daily trading limit a number of days on the less-than-anticipated area that U. S. producers planted to the crop, and on the larger-thanexpected reduction in the amount of corn sitting on-farm and in commercial position.

Old-crop soybean values were able to move up on continued tight old-crop supplies and firmness in the cash market. New-crop soybean futures fell sharply in response to the jump in U. S. soybean-planted area and more than enough old-crop supply.

USDA’s acreage and quarterly grain stocks updates managed to significantly upset the market’s psychology during the latest week and set the stage for some major revisions in future reports.

USDA’s estimate of soybean plantings in the U. S. now sits at 78.868 million acres, up from the March projection of 78.098 million and the 77.5 million acres seeded in 2009. Most market participants had expected a smaller increase in the June estimate.

USDA pegged U. S. soybean supplies as of June 1 at 571 million bushels. Soybean stocks on March 1 had totalled 1.27 billion, and 596 million a year ago.

CORN CONSUMPTION

The amount of corn stored on farms and in commercial facilities, as reported by USDA, sent market participants scrambling to reconcile the new numbers with a January report which showed a surprisingly large 2009 crop.

The reduction in U. S. stocks was believed to have been linked to a greater usage of corn for livestock and steady use of corn in the ethanol sector.

However, the USDA numbers that grabbed the attention of the market were for corn, with a number of analysts I spoke with calling the projections “unbelievable” or most likely to undergo revisions in upcoming reports.

The area planted to corn by U. S. producers totalled 87.9 million acres. That’s down from the 88.8 million acres that had been projected earlier this year, but still a two per cent increase from the level seeded in 2009. Market participants had been expecting the USDA to peg U. S. seeded area to corn in 2010 at around 89.3 million acres.

While the area seeded is down, it’s still the second-largest U. S. corn-seeded acreage in history.

USDA acknowledged that the 2010 corn crop was the “third-quickest planting pace on record, behind only 2004 and 2000, respectively.” The government agency said that while planting of the U. S. corn crop got off to a quick start, frosts in parts of the U. S. Midwest did some damage in late April.

Below-average temperatures and wet weather in the U. S. Midwest and portions of the Great Plains during the middle part of May also hampered the planting of the U. S. corn crop and threatened emerging plants, USDA said.

From a Canadian perspective, the U. S. corn numbers may encourage end-users to extend coverage on feed barley, given that there could be less corn to service the Canadian livestock sector. However, based on the U. S. ethanol usage number, there is not likely to be any shortage of dried distillers grains (DDG) in the U. S. End-users in Canada will easily make that transition if they need to.

BEARISH ON WHEAT

Meanwhile, all of USDA’s wheat data was bearish given the higher-than-anticipated level of U. S. wheat acreage and the higher-thanexpected level of old-crop wheat supplies.

The bottom line with the USDA wheat numbers is that U. S. wheat ending stocks will likely move to their highest level in 23 years at above one billion bushels.

That will more than offset any upside in wheat values Canada had.

The USDA report also contained some canola and flaxseed numbers, which drew some attention from Canadian market participants.

USDA pegged U. S. 2010 canola area at 1.524 million acres, up from 827,000 seeded in 2009. Flaxseed area in the U. S. came in at 410,000 acres, also up from the 2009 level of 317,000.

Meanwhile, the short-to medium-term weather outlook for the Canadian Prairies does not look a lot different from what has already transpired. That means short periods of dryness, followed by significant precipitation. This should help to keep a weather premium under canola futures, at least in the near term.

The weather outlook for the dry canolagrowing regions of the Peace River region of northern Alberta also continues to lack significant soaking precipitation, which will only serve to keep weather concerns front and centre in the canola outlook.

– Dwayne Klassen writes for Resource News International (RNI),

a Winnipeg company specializing in grain and commodity market reporting.

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