U.S. WASDE points to lower ending stocks, lifts futures

The March contract set a new high based on USDA’s report

Within days before the U.S. Department of Agriculture (USDA) issued its latest supply-and-demand report, there was speculation of further reductions to ending stocks for soybeans, corn and wheat. Such bullish news would see U.S. prices rise and spill over into canola.

On Jan. 12 USDA released its world agriculture supply-and-demand estimates (WASDE), which slashed soybean ending stocks from a year ago by more than 73 per cent, at 140 million bushels. Carry-out for corn dropped nearly 21 per cent from 2019-20, at 1.55 billion bushels. Wheat had its carry-over reduced 19 per cent from a year ago, to 836 million bushels.

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The result of those cuts saw March soybeans at the Chicago Board of Trade (CBOT) skyrocket by nearly 46 U.S. cents per bushel. Corn climbed by its maximum daily limit of 25 U.S. cents/bu. within about 12 minutes after USDA released the report. Wheat saw strong gains, with Minneapolis March futures rising 15 U.S. cents/bu., Kansas City up by more than 28 cents, and Chicago jumping over 30 cents.

For canola, that translated into the March contract gaining more than $14.10 per tonne, setting yet another contract high at the close, of $686.90.

Although prices pulled back a little the day after, due to technical selling and profit-taking, speculation that USDA could further drop ending stocks in February’s WASDE fuelled another round of increases.

Corn and soybeans continued higher in the following days, before running into some profit-taking resistance. Product values were higher as well, with soyoil gaining more than nine-tenths of a cent and soymeal up almost US$8 per hundredweight. They too ran into profit-taking, turning lower.

There’s little doubt of strong demand on the global market, especially from China. As it rebuilds a hog industry devastated by African swine fever — and as it expands its economy in general — China’s demand for soybeans, canola and other crops is increasing.

While prices are good for U.S. and Canadian farmers at the moment, and could climb even higher, there is the potential for the bubble to burst. The soybean harvest in South America will soon come onto the world market. Brazil is expected to produce a record 133 million tonnes, despite dry conditions that hampered the crop’s seeding and growing periods. Argentina is forecast to produce about 47 million tonnes, despite enduring more severe dry conditions.

In coming months it will be interesting to see what plays out. Low ending stocks in North America could lead to price rationing, but any increases from that could be tempered by a bountiful harvest in South America.

About the author

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Glen Hallick - MarketsFarm

Glen Hallick writes for MarketsFarm specializing in grain and commodity market reporting. He previously reported for Postmedia newspapers in southern Manitoba and the province’s Interlake region.

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