Thursday's USDA report was neutral in a sense that both U.S. soybean yield and production were reported at the same level as the Dow Jones pre-report trade estimates. Yield was reported at 41.2 bushels per acre, down from August's 42.6 bpa, while production was reported at 3.149 billion bushels, down from Augusts' 3.255 bb. The surprise came in the ending stocks for the end of the 2013/14 crop year, which was reported at 150 million bushels, down from last month's 220 mb as assessed by the USDA and also below the average trade estimate of 161 mb, leaving the soybean report viewed as bullish.
While the stocks/use ratio of 2012/13 is estimated to be an extremely tight 4%, today's report suggest that this ratio will improve only modestly to 4.8% in the upcoming year, leaving little room for any surprises. As a result, November soybeans closed 37 3/4 cents higher at $13.96 per bushel, which compares to its recent high of $14.09 1/2 and the contract high for the November contract at $14.09 3/4/bu.
Canola traders reacted in a similar fashion, with November canola closing $7.10/mt higher at $504/mt, after reaching an intra-day high of $506/mt. Interesting enough, this move took place on the same day that Saskatchewan Agriculture released its weekly crop report which suggested that harvest progress is not only ahead of the five-year average, but the yield prospects for canola have also improved. On Aug. 26, the six crop regions of the province reported canola yields which ranged from 30 to 36 bpa, with the average being 32.5 bpa, while today's report indicated a range from 33 to 37 bpa, with the average being 35 bpa. Note that this data is not an estimate of the final crop's potential, but rather a snapshot in time.
As seen on the attached chart, prices have moved sideways this week after hovering below the $500/mt level, which represents an important psychological number but also the 61.8% retracement of the move from $472.40 on Aug. 6 to $544.90 on Aug. 26. Positive short-term signals are seen in the daily stochastic momentum indicators in the lower study with a cross-over of the two lines taking place while in the over-sold region of the chart (below 20). The cross-over of the faster 20-day moving average (blue line) above the 50-day moving average (pink line) is another positive short-term indicator.
Should canola find a reason to push higher, resistance may be faced at the 20- and 50-day moving averages, at $512.60 and $511.10/mt respectively. Trendline resistance may also be faced at $519/mt.
While not shown, it is the actions of the commercial traders which perhaps remain a concern. As noted on the soybean spread chart, commercial traders have been buyers in this week's market as noted by a strengthening in the inverse in the distant months. In fact, it's been pointed out in DTN analysis that this is highly unusual, given that the Jan/Mar and the Mar/May soybean spreads are indicating a bullish signal during a period of time when South American product is hitting the market.
This is not the case when it comes to canola. The Jan/Mar, the Mar/May and the May/July have all shown weakness this week, including Thursday's trade, indicating a bearish sentiment among commercial traders as carry increases. This is a situation that bears watching. Another sign of lackluster interest is cash basis which is rapidly widening, with the average Prairies-wide basis calculated at $30.26/mt under the November.
Cliff Jamieson can be reached at firstname.lastname@example.org
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