Up limit spike points to more acres needed

A key USDA report shocked the market and resulted in prices moving upward

Shock and awe rocked the markets on March 31 after the United States Department of Agriculture (USDA) issued its prospective plantings report.

The first survey-based projections for 2021 caught the markets largely off guard that Wednesday, which sent prices to their daily limit in several commodities.

That not only included the soy complex and corn on the Chicago Board of Trade (CBOT), but canola on the Intercontinental Exchange (ICE).

Ahead of the planting report, the trade called for an average of around 90 million acres of soybeans to be sown this spring. Instead, the USDA came in much lower, at 87.6 million acres, but it’s five per cent more than what was planted in 2020.

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The numbers for U.S. corn were more startling, as the USDA projected a mere 0.3 per cent increase over 2020 plantings. The 91 million acres forecast were below the average trade estimate of approximately 93 million.

Normally, the case would mean acres resulting in greater production, and a larger supply would lead to lower prices. Not so this time around as strong demand has created tight supplies. In short, the increases the USDA expects to come in 2021 simply won’t produce enough products to meet demand.

Then what ensued at CBOT and ICE was interesting to say the least. Chicago soybeans in its most active months vaulted to its daily limit of 70 cents per bushel. Soyoil was up limit at 2.5 U.S. cents per pound and soymeal jumped to its maximum of US$25 per hundredweight. Corn followed suit rising to its limit of 25 U.S. cents/bu.

With that kind of spillover support, canola leapt to its daily limit of $30 per tonne. Shortly after the close, ICE issued a notice it was increasing canola’s daily limit to $45/tonne effective April 1.

In light of the 13-month-old global COVID-19 pandemic, the hunger for soy, corn and canola has seen vastly improved exports coupled with strong domestic demand — be that for human or animal consumption or for biofuels.

After that huge spike on March 31, old-crop canola was still behind its levels from a week ago. The May contract was off $39/tonne from its close of $796.10 on March 24, while July was down $26.10.

Besides the overwhelming spillover from CBOT, the strong spike in canola should garner interest from farmers in growing more of the Canadian oilseed than they initially planned for. In turn, that would be crucial as Agriculture and Agri-Food Canada (AAFC) projected ending stocks for the current and following marketing years to be a very tight 700,000 tonnes.

In the department’s most recent supply-and-demand estimates, it projected more than 20 million acres of canola to be sown this spring. Coupled with dry conditions looming over much of the Prairies, that amount of acres might not be enough to meet demand.

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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