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USDA report surprises oilseed market

Traders were expecting a lower yield number and when they didn’t get it, they reacted

ICE Futures Canada canola contracts may have finally topped out after the USDA’s monthly supply-and-demand report put the entire oilseed sector under pressure.

Canola futures began climbing back in the early part of September, eventually rising above the $520-per-tonne mark. However, that changed on Thursday, November 9, when the USDA left its prediction for soybean yields in the U.S. untouched. Traders had generally been expecting the yield number to fall slightly, but when that didn’t happen they started selling almost immediately.

The front-month January contract fell $5.30 on the day. It could have fallen more, but seemed to find a level of technical resistance at the $515 mark.

Demand for canola remains strong though and growers have been moving some supplies. Crushers and buyers have been putting on a few “specials” too, in order to keep things moving. Many in the industry want to get some more canola out of the bins before the dead of winter sets in.

Crush margins have been improving in recent days as the Canadian dollar has softened a bit from a few weeks ago.

In the U.S., both the soybean and corn markets were pressured by the USDA’s monthly supply-and-demand report. The agency surprised many in the oilseed industry by leaving the yield number untouched. The USDA also issued a slight revision to the carry-out in the U.S. which further undermined prices. On the international scene, soybean production estimates for Brazil and Argentina stayed relatively neutral, although rain in northern Brazil has improved growing conditions for the soybean crop. Brazil is expected to produce around 108 million tonnes while Argentina’s output is pegged at 57 million tonnes.

The corn market dropped from its usual perch near the US$3.50-per-bushel mark after the report came out. The USDA raised its yield estimate by a larger amount than expected. The agency pegged yields at 175.4 bushels an acre, up from the previous estimate of 171.8 bushels. If that prediction holds true it would be the biggest national average yield ever. The USDA also raised its estimate for the U.S. carry-out to 2.487 billion bushels, up from the October estimate of 2.295 billion bushels.

Chicago wheat futures continue to be pressured by the increasing size of the Russian wheat crop. SovEcon consulting agency raised its projections for Russian wheat production to a record 82.9 million tonnes. That exceeds the USDA’s prediction and comes at a time when the Russian ruble is relatively weak.

About the author

Columnist

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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