USDA Report Improves Market Outlook

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

Grain and oi l seed futures at ICE Futures Canada in Winnipeg closed the week ended April 3 mixed, with canola up and barley down in an active week. Canola was lifted by gains in the U. S. soy complex, a friendly U. S. acreage report, increased export activity and bullish technical signals.

Pakistan and Mexico were both in the canola market this past week. Speculators, including commodity funds, were also good buyers. The gains came despite steady commercial selling and farmer pricing. The rally took cash bids to attractive levels for some farmers and triggered some pricing of contracts by other farmers. Western barley futures posted losses on sluggish demand. The market ignored the fact that cash bids are above futures contracts and that U. S. corn futures rallied.

Chicago corn and soybean markets rallied during the week. Markets were supported by the friendly U. S. Department of Agriculture (USDA) grain stocks and acreage reports and enthusiasm generated by the seemingly successful conclusion to the G-20 meeting in London. Soybeans drew added support from continued strong demand from the export market and tight farmer holding. The old crop saw the biggest gains. Corn futures also rallied on tighter corn supplies, higher crude oil prices, exceptional exports this week and the government reports. However, old-crop corn continued to run into exceptionally heavy farmer selling every time the futures market hit $4 a bushel. Both soybeans and corn drew support from friendly technical signals which triggered good levels of speculative buying.

U. S. wheat futures posted strong gains. The markets were supported by concerns about the U. S. winter wheat crop and the advances in outside markets including the U. S. stock market and crude oil. The strength in corn and soybeans also stimulated buying in the wheat market. The USDA reports were more neutral for the wheat markets, except for Minneapolis spring wheat. Lower acres for spring wheat were supportive, as was the flooding problem in North Dakota. Capping the gains were sluggish exports.

FRIENDLY TO NEW CROP

USDA brought out its first look at U. S. acreage based on actual farm surveys. The numbers were actually quite friendly to the new-crop futures. At the same time, USDA brought out its latest quarterly grain/oilseed stocks reports and they were also quite friendly to the price outlook for the old crop.

The numbers that were most neutral were the wheat numbers, although they contained some positive notes for Canadian farmers. USDA pegged total wheat acres at 58.638 million, down from last year’s 63.147 million acres. This would yield a crop of about two billion bushels, which would mean that the U. S. would lower its wheat stocks and that would be mildly supportive.

However, the most interesting numbers for Canadian farmers came in the estimates for U. S. spring wheat acres, which came in at 13.304 million, down from last year’s 14.135 million. Considering that current flooding will also likely cut into spring wheat acres, U. S. production will fall enough to benefit Canadian spring wheat producers with higher prices.

USDA forecast U. S. durum acres at 2.445 million, down from 2.731 million acres. This is also good news for Canadian durum producers. However, both Canadian and U. S. farmers are carrying large stocks of durum in storage and this will limit any major upside in the market, unless significant problems develop in the North African durum crop.

CORN USAGE

The corn estimates were very friendly for the market. First the March 1 quarterly grain stocks came in at 6.958 billion bushels, up from 6.859 billion last year but below trade estimates. This suggests the pace of usage has been stronger than expected and ending stocks estimates are likely lower than the March USDA forecast of 1.7 billion bushels. This is positive for the old crop and will keep old-crop prices near the $4/bu. level.

For the new crop, USDA estimated the acreage at 84.986 million, down from 2008’s 85.98 million. Lower prices and the high cost of inputs for corn cut the acres. This is quite friendly for the market. Given average yields this would result in a crop of about 12.2 billion bushels.

Consumption of U. S. corn in 2009-10 is expected to be 12.5 billion to 12.7 billion bushels. This will pull ending stocks down to the one-billion-bushel level, which is quite tight. It also suggests new-crop corn futures will hit US$5/bu. after the harvest. It will also mean the market will be very susceptible to weather influences, which suggests very volatile times.

This will supply a positive backdrop to the Canadian barley market and help to lift the barley market in the new crop. We could even see $5/bu. barley in 2009-10.

U. S. SOYBEANS SURPRISING

The numbers that were the most surprising came in soybeans. The March 1 grain stocks came in at 1.302 billion bushels, down from 1.434 billion at the same time last year. Export demand, notably from China, was thought to have caused the number to be lower. This suggests we will see old-crop futures hit the US$10-$10.50/ bu. level, which will be supportive for old-crop canola.

For the new crop, USDA forecast U. S. planting at 76.024 million acres, up only slightly from last year’s 75.718 million acres. The trade had been expecting to see 79 million to 80 million acres. This would yield a crop of about 3.3 billion bushels.

Consumption of soybeans in the U. S. in 2009-10 is expected to be about three billion bushels. This would result in ending stocks of U. S. soybeans climbing to about 400 million, which is burdensome and suggests that soybean futures could drop to US$8/bu. This would weigh on canola, but canola would likely move to a bigger premium to soybeans because of the tightness of canola supplies, expected in 2009-10.

With soybean stocks coming into 2009-10 as tight as they are, this market will also be very sensitive to weather problems and any significant reduction in yields would see the soybean market rally quickly back to and above US$10/bu. in the new crop.

Something to be aware of is that the USDA acreage report suggests U. S. farmers will plant six million to eight million fewer acres than last year. Grain trade sources and analysts feel the rally we have seen this spring will probably bring some of those acres back into production. They are looking for total bean/corn acres to be two million higher in the final acreage numbers.

– Don Bousquet is a well-known market analyst

and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.

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