Shocking USDA stocks data
Heading into the U.S. Department of Agriculture report on quarterly grain stocks last week, traders’ expectations were for supplies to be roughly equal to what was shown in the September supply and demand estimates. The actual numbers told a much more bullish story.
Grain markets had just started to settle back down from tough Corn Belt weather in August and a flurry of purchases made by China. Harvest was rolling for corn and soybeans, users had a handle on wheat production and supplies, and prices were backing off. Heading into the U.S. Department of Agriculture report on quarterly grain stocks last week, traders’ expectations were for supplies to be roughly equal to what was shown in the September supply and demand estimates. The actual numbers told a much more bullish story.
Corn stocks were the biggest shock, with the USDA reporting 1.995 billion bushels to end the 2019-20 crop year. This was 255 million bushels below the average pre-report estimate by market analysts. Soybean stocks were 53 million bushels below expectations. Wheat stocks were 83 million bushels below expectations. Adding to the wheat bullish move was 2020-21 production for all wheat falling 15 million bushels below expectations.
In the past, markets have missed on their expectation for the stocks report. However, it is rare for such big misses for all three major crops. Prices responded in kind, with major rallies. Going forward, it is important to note that supplies are generally still comfortable. But some reports of worse-than-expected yields for corn or soybeans would cut into supplies further and really push the rally further.
As mentioned, wheat really got a boost from the stocks report, but there is more going on with wheat outside of the U.S. that has to be noted. Russia is planting next year’s crop in a drought and there are major concerns in the early going for the pre-winter development of the crop. Without a good stand, output in 2021 may be reduced for the world’s top wheat supplier, and the market is building in some premium to account for that. Additionally, Ukraine is facing similar drought issues during planting, slowing progress and reducing planted area for the 2021 crop. Within the U.S., the Plains have been very dry for winter wheat planting, and the emergence of a La Niña could potentially bring more dry weather to the area in the months ahead. The one bearish factor that has limited gains has been the overall global supply picture is quite comfortable. We still have record global wheat stocks, which is keeping prices from running away to the upside.
Durum prices remain weak in Minneapolis, with little excitement to report. Supplies are comfortable and that is keeping a lid on the market. The USDA’s production report showed a major bump in output versus a year ago, totaling 69 million bushels. This was a marked improvement from last year’s 54 million bushels and even exceeded the pre-report estimate of 62 million bushels.
The canola market has tracked with the moves made in the soybean oil market. Prices had been on a tear to the upside, rallying steadily from the lows hit in the spring. On top of the overall fats market support, trade tensions have finally warmed a bit between Canada and China. Look for canola prices to continue to track with soybean and palm oil markets.
Pulse markets have seen support on strong export demand. The Canadian Grains Commission is reporting good movement for peas and lentils to start the season. Shipments of peas in September exceeded last year by over 100 tmt. Harvest went quickly and prices are high, so farmers are getting a jump on exports to capitalize on the opportunity.
Mustard seed prices have been steady, with limited trading activity to report over the last week. With harvest of the crop basically complete in Canada (just one percent of the crop is left to be harvested), yield reports are varying and uncertain. Until there is a greater understanding of production and supplies, look for limited price movement.