USDA’s reports pressure canola, wheat, corn and soy

Canola futures on the ICE Futures Canada trading platform were forced into losses during the holiday-shortened week ending March 28 by the release of some bearishly construed U.S. Department of Agriculture reports. Canola had been edging upward until that point.

Concerns about tight old-crop supplies, steady export demand and some light domestic crusher needs had combined to influence the strength in canola. Farmer deliveries into the cash pipeline had also lightened up to the point where grain companies began raising the farm gate price in order to generate some movement.

However, the USDA report released Friday caught market participants more than a little off guard, and sparked a major retreat in values across North America. Some weakness in canola also came from news this week that Australia was again going to be allowed to ship canola into China’s market, after being banned for the past three years. Australia and Canada have competed aggressively for a share of China’s canola business, and with Australia’s proximity and larger-than-anticipated harvest, Canada was seen losing out on some canola sales.

The general firmness of the Canadian dollar against the U.S. greenback also did not do canola futures any favours this week.

While USDA’s report exposed some weakness in canola, supplies continue to be tight and values should be able to hold. The talk in the trade is that cash basis levels at Vancouver remain at historic highs, which in turn suggests the commodity is still wanted.

Activity in the milling wheat, durum and barley market on the ICE Futures Canada platform continued to be non-existent. The general feeling among some market participants is that with no open interest in any of the contracts, the existence of these futures will be limited.

Soybean futures at the Chicago Board of Trade (CBOT) sold off significantly during the week, with much of the downward price slide coming on the release of USDA’s reports on March 28. Values had also been climbing slowly based on sentiment that the USDA report would confirm extremely tight old-crop stocks. A lot of the selling that surfaced after the report came from speculative and commodity fund accounts trying to limit losses after establishing large long positions prior to the release of the numbers.

USDA’s quarterly grain stocks report pegged U.S. soybean supplies at one billion bushels. The estimate was above pre-report expectations which generally fell in the 947-million-bushel category and suggests the 2012-13 U.S. soybean crop was understated to the tune of roughly 35 million to 50 million bushels.

The government agency also revealed U.S. farmers intend on seeding 77.1 million acres to soybeans this spring. If realized this would be the fourth-largest soybean crop in the history of the U.S. Last year, U.S. farmers planted 77.2 million acres of soybeans. Pre-report guesses on soybeans had ranged from 77 million acres to as high as 79.7 million.

CBOT corn futures also experienced some significant declines, with much of the downward slide associated with the USDA reports. Here too, speculative and commodity fund accounts had built up a fairly large long position in the market, based on ideas the USDA report would confirm extremely tight corn stocks in the U.S.

USDA, in its report, projected old-crop corn supplies in the U.S. were sitting at 5.4 billion bushels, well above pre-report expectations in the five-billion-bushel range. USDA explained the jump in supply came in response to softer demand from the ethanol sector, as well as from both the domestic and export arenas.

Meanwhile, U.S. corn producers intend on planting 97.3 million acres to the crop this spring, in line with pre-report ideas. However, additional acres are expected to come from small grains, cotton, pasture land and the U.S. Conservation Reserve Program. If this materializes, intended corn acreage in the U.S. would be the highest ever recorded. Last year in the U.S., farmers seeded 97.16 million acres of corn.

Wheat futures on the CBOT and Minneapolis and Kansas City exchanges suffered some major declines during the week with consistently poor export demand and improvements in the development of the U.S. winter wheat crop sparking some of the downward price action. The release of USDA’s prospective plantings and the quarterly grain stocks figures also added to the bearish sentiment in wheat markets.

Projected plantings of all wheat in the U.S. were forecast by USDA to come in at 56.34 million acres, in line with pre-report guesses but up from the year-ago level of 55.7 million.

One of the bearish surprises on the wheat side of the coin, was the expected 450,000-plus-acre jump in North Dakota spring wheat plantings in the upcoming season. This would bring that state’s hard red spring wheat area to its highest level since 2010.

U.S. wheat supplies as of March 1 were pegged by the government agency at 1.23 billion bushels. The projection came in above pre-report expectations in the 1.167-billion-bushel range and surpasses the 1.199 billion bushels in storage at the same time a year ago.

The wheat stocks estimate implies less wheat was used during the spring quarter than previously thought, so animal numbers are lower than expected and/or other feed grains were used during the December‑January time frame.

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