Canada Markets

For an entity as conservative as USDA is with their monthly adjustments to make the size of changes as seen in Friday's World Agricultural Supply and Demand Estimates (WASDE) update, the message should be to pay close attention -- and we certainly are.

In one month, USDA increased its estimate of the average annual cash price by an unprecedented 7 cents per pound or 15.2% thanks to surging biofuel production use (see accompanying chart). A whopping 26.5% or 3.25-billion-pound increase in 2025-26 biofuel use compared to 2024-25 levels set the stage. That represented an increase of 1.6 billion pounds for 2025-26 from the June update.

Due to limited supplies, 2025-26 estimates for soybean oil exports were cut by 1 billion pounds from the June report with a huge 1.9-billion-pound reduction from 2024-25. It will now be up to the market to ensure that exports do in fact remain negligible for the year to come. A repeat of the record-setting discount to palm oil that spurred on the increase in 2024-25 exports (from an initial estimate of 600 million pounds to the current estimate of 2.6 billion pounds) cannot be allowed to happen.

Interestingly enough, the tight supplies expected to come are despite an increase in production of 590 million pounds (for 2025-26) compared to the June update thanks to a 50 million bushel (mb) increase in soybean crush. It's worth noting production is now expected to exceed 2024-25 levels by 1.170 billion pounds, highlighting the extent of the impact of expected changes thanks to support for the biofuel industry.

It's also worth noting imports had to be increased by 150 million pounds over the June estimate for 2025-26 (to 450 million pounds), leaving them 50 million pounds over the 2024-25 level. That gives a nod to strong canola oil demand for the coming year, especially given the special treatment allowed to Canadian- and Mexican-grown feedstocks in the budget bill.

Given exports of soybeans had to be cut by 70 mb to accommodate the increased crush, it will be important for yield to hit the record high level of 52.5 bushels per acre (bpa) USDA is currently assuming. With the 3.6-million-acre reduction in the soybean harvested area, a lower yield due to adverse weather in August would have serious implications. One would expect the market to be sensitive to the heat and dryness forecast to build into the Corn Belt as July comes to a close, with it needing to be monitored.

Now that the fundamental outlook is vastly improved, what does the technical picture look like? The monthly chart is still suggesting the break into 2024 was simply a huge bull market correction off the 2022 highs. The recent rally suggests at least a bounce could be expected with light resistance found at 51 and 54.50 already surpassed and the 60 cent/pound area yet to be tested. Significant resistance is not seen until 65 cents.

The weekly and daily charts still have excellent looking saucer bottom formations that have been forming since mid-2023. The longer it takes to form, the greater the upside move is should bullish developments allow it to play out. With a breakaway gap up over resistance at 51 cents (and almost the May high of 52.62 cents), the saucer bottom has been confirmed, and higher prices would be expected.

Looking at market participants themselves, managed-money traders have returned to the net-long side in recent months but are far from extreme levels. As of July 8, they were net long only 37,741 contracts, well short of their 2016 record of 126,543 contracts. Plenty of buying power should they decide to deploy it.

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

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