The February supply/demand report is typically a non-event as this report is sandwiched between the all important January final production report and the March planting intentions report.
The report didn’t reveal any major surprises to the U.S. demand equation, in fact this report will be better remembered for the world supply/demand figures than the U.S. figures.
In the U.S. supply/demand numbers, the USDA actually kept the corn ending stocks unchanged at 1.790 billion bushels, a minor victory for the bulls. The trade was fearful that the ethanol usage category would be lowered as this industry remains in deep financial trouble.
There was also a fear that exports might be lowered slightly, thus creating a situation where ending stocks grew from last month. However, the USDA left every single category unchanged from last month, making the corn category a non-event.
World production was lowered by 3.95 in Brazil and 18 percent in Argentina from last month due to drought conditions in those countries.
World corn carryout levels are now estimated at 136.66 metric tons. The ethanol category remains the wild card for corn traders as poor margins have traders concerned that the USDA could lower ethanol demand in upcoming reports.
For soybeans, the USDA lowered ending stocks to 210 million bushels from 225 mb in January, a 6.7 percent decline in one month. Exports were increased by 50 mb from the January report, but a 35 mb reduction in crushings resulted in a net 15 mb decrease in stocks.
The USDA lowered world soybean ending stocks to 49.87 mt, down from 53.94 mt in January, as drought has hurt the South American soybean crop.
Soybean production in Brazil was estimated at 57 mts, down 3.4 percent from January and soybean production in Argentina was estimated at 43.8 mts, down 12 percent from January.
With the reduction in South American supplies, the world will continue to turn to the U.S. for its export needs, keeping a strong demand base underneath the soybean market.
Corn closed the week $.14 lower. The weekly export sales report showed net sales of 1.5 million metric tons, a marketing-year high, were up 33 percent from the previous week and 73 percent from the prior four-week average.
Increases reported for unknown destinations (641,200 MT), South Korea (484,000 MT, including 105,000 MT switched from unknown destinations), Egypt (215,400 MT), Taiwan (174,000 MT, including 56,700 MT switched from Japan), Syria (44,200 MT, including 26,200 MT switched from Egypt), and Mexico (31,300 MT), were partially offset by decreases for Japan (168,500 MT), Guatemala (11,500 MT), and Trinidad (5,500 MT).
After making marketing year lows in export sales for three consecutive weeks, export sales have rebounded to post four consecutive weeks of marketing year high export sales. For the marketing year, corn sales are 53 percent behind last year’s demand pace.
The USDA has now exported 1.040 billion bushels of corn compared to 1.901 bb last year. The USDA also announced four private sales this week, totaling 538,000 mts. This should guarantee another strong week of strong export sales next week.
Technically, the double bottom that is evident on the weekly charts will act as good support and this support hold through the planting season. Prices will move sharply lower if this support is broken.
Soybeans closed the week $.45 1/2 lower. The weekly export sales report showed net sales of 1.7 million MT were up noticeably from the previous week and 21 percent from the prior four-week average.
Increases for China (724,300 MT, including 220,000 MT switched from unknown destinations), Mexico (96,100 MT), Indonesia (77,600 MT), the Netherlands (61,800 MT, including 60,000 MT switched from unknown destinations), Egypt (47,200 MT), and Syria (36,600 MT, including 18,600 MT switched from Egypt), were partially offset by decreases for unknown destinations (29,000 MT). Net sales of 500 MT for delivery in 2009/10 were for Japan.
This year’s export pace remains well above last year’s pace as the U.S. now has export commitments for 937 mb compared to 898 mb a year ago. The USDA announced two private sales totaling 236,000 mts to China last week. Technically, soybeans remain well below the double top highs that occurred in January at $10.40. This resistance will only be broken with a resumption of the dryness in South America or a major weather problem in the U.S. this spring.
Soybeans traded below the January lows in the month of February; leaving a chart pattern of lower lows and lower highs.
This is the definition of a downtrend. Prices have strong demand, but demand looks to slow as harvest has started in Brazil and is reaching approximately 10 percent completed.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
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