Grain Snippet: USDA Surprises Fuelling the Oilseed Bulls
- USDA leaves soybean plantings unchanged
- US soybeans stocks 44% lower YoY
- 33% of US soybean crop in drought
- Canadian subject to extreme heat, wind and complete dryness
Local canola values have an eventful couple of weeks, fluctuating between $705-$800/MT. The US Supreme court handed down a ruling on June 25 which allows the Environmental Protection Agency (EPA) to extend exemptions to small refineries who are suffering financial hardship. This sent futures prices plummeting. However, the EPA isn’t expected to hand out widespread waivers as the current administration is committed to clean energy. The market has largely decided this ruling won’t have a major impact on vegoil demand moving forward. In the past week the oilseed complex has found support from unfavourable weather and a bullish USDA Stocks/Acreage Report. Local canola values reached $800/MT for Adelaide & $790/MT for Port Lincoln, which is decile 10 pricing. Basis levels currently sit at €-32.52/MT (Adelaide/Matif), which means Australian canola is competitive on the global stage.
US soybeans rallied strongly after the release of bullish USDA Stocks/Seeding reports. The market had been expecting an increase from the March estimates of at least 900,000 acres for soybeans, however, NASS surprised all by leaving 2021 soybean planted area unchanged at 87.6 Mil acres. The Grain Stocks Report showed soybean stocks at 767 Mil bushels, down 44% from June 1 2020, which was significantly lower than trade estimates. It is also the lowest June 1st stocks number since 2015. Crop conditions stabilised last week at 60% GD/EX, however this is below the 5-year average. With some flooding occurring last week in Illinois causing some yellowing we expect ratings will fall this week. This assumption is furthered by the Northern Plains remaining dry, with the drought monitor showing 33% of the soybean crop is in drought. 100% of both North and South Dakota, 97% of Minnesota, and 75% of Iowa were declared to be in drought. Yield will remain the key driver of the soybean market moving forward as weather forecasts are monitored closely. There is no room in the balance sheet for below trend yield with stocks/use at historically tight levels.
November canola futures had an extremely strong week gaining CAD$91/MT to reach new contract highs of CAD$830/MT. This was despite StatsCan increasing canola area by 949,000 acres to 22.479 million acres, which was in line with market expectations. The canola crop was subject to extreme heat, wind and complete dryness last week which was the major driver behind the increase in futures. Canola crop ratings sit at 38% GD/EX, compared to 64% GD/EX just two weeks ago. The outlook for the coming two weeks remains warm and dry. Time is running out for rainfall to eventuate with the crop entering the reproductive phase. Any ongoing dryness will negatively impact canola yield. Canola oil is used in US biodiesel production and Chinese demand is record large, any reduction in production is bullish for the market as world veg oil stocks/use ratios are at record lows. We could see the market test CAD$850/MT on continued upside momentum. If the market pulls back due to any improved weather, support will be found at CAD$775/MT, which had previously been key resistance.
EU rapeseed has followed soybeans and canola higher. In the EU (especially France) there has been consistent rainfall over the last fortnight, with the coming fortnight trending drier. The EU rapeseed outlook remains somewhat underwhelming due to the mid-April cold snap that impacted the crop through the growing season, mostly hitting France. Production is about 19% below the 10-year average, with the last 3 consecutive years hitting EU canola growers with far less-than-ideal weather. Dry weather will be welcomed by growers as harvest is in full swing.
The vegoils appear to have formed seasonal lows in mid-June. Palm oil has rallied 8% since mid-June, most recently on the back of prospects of higher Indian demand after refined palm was allowed back into the country from Malaysia. Soyoil has rallied on the back of the bullish USDA report and upbeat global energy prices. WTI crude oil hitting it highest level since October 2018 also helped to support the vegoils. The global vegoil outlook remains bullish with tight stocks and increases to biodiesel production in the US and Europe.
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