Tight soybean supplies called good for canola

Source: www.producer.com

United States soybean supplies are going to be tight in 2021-22 and that is good news for Canadian canola growers, says an analyst.

DTN analyst Todd Hultman believes there is potential for new-crop soybean prices to exceed the 2012 spot high of US$17.89 a bushel.

The U.S. Department of Agriculture estimates American farmers will plant 87.6 million acres of the oilseed this spring. Using average yields, that would result in 4.4 billion bushels of production.

“In February, USDA estimated 4.53 billion bushels of total demand for U.S. soybeans in 2021-22, leaving a production deficit of 130 million bushels in this scenario,” Hultman wrote in a recent DTN column.

The USDA is forecasting 120 million bushels of carryout from the current crop year but he thinks it will be far lower than that due to the exceptionally strong export program.

Hultman thinks there is a good chance that U.S. farmers will plant 90 million acres of soybeans, which along with imports would help ease the supply crunch.

But there is another potential looming factor that could make the situation far more volatile.

“The one thing there is no room for in this new crop scenario, however, is adverse weather,” he said.

USDA drought maps show there is severe to extreme drought in North Dakota and western South Dakota and dry conditions are starting to appear in parts of Iowa and Illinois.

DTN senior meteorologist Bryce Anderson is forecasting above-normal summer temperatures across the U.S. and below-average precipitation for much of the central and western Plains.

That $17.89 spot price could become a reality if the national average yield drops below 50.8 bushels per acre, said Hultman.

Brennan Turner, chief executive officer of Combyne, said any positive price momentum for U.S. soybeans in 2021-22 would spill over north of the border to support Canadian canola prices.

Farmers are seeing some $20 per bushel bids for old crop canola. He isn’t ruling out a return to those lofty levels for new crop this fall if there are production problems in the U.S., Canada or elsewhere.

Turner can understand why Hultman’s “alarm bells are ringing” about the U.S. soybean crop given the outlook for hot and dry conditions in the major soybean growing areas in the June through August period.

But on the other hand, modern genetics have performed admirably under such conditions.

“We’ve had a lot of weather scares over the last number of years, yet somehow the crop continues to get bigger,” he said.

Turner thinks the “TSN turning point” for the season will be what happens in Minnesota, South Dakota and North Dakota where it is already bone dry in many areas.

Those three states are expected to account for nearly one-quarter of all U.S. soybean acres in 2021-22.

There are also soil moisture concerns in the Canadian Prairies and carryout from the 2020-21 canola crop will be minimal, so there could be strong canola prices despite what happens to the U.S. soybean crop.

However, if there is an average canola crop the downside risk for prices could be “very real,” which is why Turner has already pre-priced about one-third of his canola.

Commodity markets are cyclical and he knows that 12 months from now circumstances in the oilseed market could be completely different than they are today.