Canada Markets

The 101st annual USDA Agricultural Outlook Forum is running Feb. 27-28 with the industry treated to the first look at 2025-26. There were no major surprises in the initial data release, with the common debate over the use of trendline yields (that have appeared unrealistic in recent years) returning.

The most important takeaway for producers should be tighter-than-expected soybean ending stocks projection. The average pre-report estimate was looking for 380 million bushels (mb) to remain at the end of the 2025-26 marketing year with a wide range of 282 mb to 434 mb in estimates. The USDA's expectation of 320 mb in ending stocks should provide lasting support, especially given the extremely optimistic yield used.

Taking a step back and filling in the details, the soybean seeded area was pegged at 84 million acres versus expectations of 84.4 million (83.1 million to 86.5 million range) and 87.1 million acres last year.

The yield was somewhat surprising, even with USDA's optimistic track record, at 52.5 bushels per acre (bpa) compared to a record of 51.9 bpa set in 2016-17 and 50.7 bpa last year, 50.6 bpa the year before, and 49.6 bpa in 2022-23. Given increasingly volatile weather and disease pressure, many argue that a trend higher in yield is no longer valid to assume.

That is precisely where the alarm bells should go off when developing a marketing plan. If yield just matches the previous record high of 51.9 bpa, 50 mb would be cut in production with ending stocks falling to 270 mb, all else remaining equal. That would be barely above the 2022-23 level of 264 mb (see attached chart) when the average farmgate price was $14.20/bu. Should the recent yield be more normal and it turns out to be 50.7 bpa, 150 mb less would be produced. As you can see from the accompanying chart, the resulting 170 mb ending stock level takes you back to 2013-14 to find a smaller carryover (should all else remain equal). Of course, in such a scenario, prices would presumably rally to ration demand and all else would not remain equal.

As suggested in these well-worthwhile weather blogs by DTN meteorologists Bryce Anderson and John Baranick on the challenges that could lie ahead for 2025 ("Much of Corn Belt Has Long-Term Drought Ahead of Spring Planting," https://www.dtnpf.com/…)and ("2025 Growing Season Weather Update: Uncertainty After La Nina; Hotter, Drier This Summer," https://www.dtnpf.com/…), there is no doubt why skepticism over USDA's record yield assumption is so common. And why critical thinking is so important when developing a marketing plan.

Looking at the record large South American production prospects that have weighed on soybean prices for months, yield prospects have been declining lately on hot and dry weather in southern Brazil and Argentina with further cuts possible as previous damage becomes clear.

According to the February World Agricultural Supply and Demand Estimates (WASDE) report released Feb. 11 (https://www.dtnpf.com/…), South American soybean production was estimated at 231.8 million metric tons (mmt) with Paraguay included. That was down from 235.3 mmt the month before, but 16.3 mmt above last year. That is the headline, which gets all the attention.

The interesting part that gets much less press is the increase in domestic use (crush) that has been developed along the way to feed growing biofuel demands. Total domestic use is projected to be 6.5 mmt higher than last year and 14.8 mmt above the 2022-23 marketing year. On top of that, storage is starting to catch up to the growth in production and crush facilities with higher ending stocks being carried over as a pipeline amount.

The result of all the changes is exports for 2024-25 are projected to simply be unchanged compared to the previous year while U.S. export estimates are 3.54 mmt or 130 mb higher. That would likely explain why USDA increased its U.S. export estimate further for 2025-26 compared to the previous year (1.865 bb vs. 1.825 bb in 2024-25).

From a technical point of view, the monthly chart has been trading within a steep down channel since the 2022 high. A close above the February high of $10.80/bushel would signal a breakout to the upside. The next major resistance would be found in the $11.80/bushel range. It's worth noting that the current rally started off long-term support at old resistance around $9.50/bushel. The weekly chart has a potential double-bottom off that support with a measured move to $12.10/bushel on a break over the neckline at $10.80/bushel. Given the 100-week moving average comes in under $12/bushel currently, it might be difficult to hit the full target should a rally occur. On the daily chart, prices have been consolidating above the 100-day moving average throughout February. Should that support hold and values turn up on the Ag Outlook Forum results, long-term targets will be in the bull's sights.

Looking at the market participants themselves, managed money traders are nearly flat (only net long 16,526 contracts) after liquidating a record net short of 185,750 contracts or 929 mb from July to the start of February. Given this analysis, it would be reasonable to assume the next position they work at building would be a net long.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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