On Jan. 11, the USDA released its latest, and widely anticipated, supply/demand report. With final acreage and production figures updated, quarterly stocks and demand changes, plus winter wheat seeding estimates; this report promised to be a shocker for the trade.
Price action was limited prior to the report’s release to minor short-covering. Following the report, the market has rebounded nicely. Ahead of the report, we mentioned many times the report had the potential to change the fundamental and technical trend of the market.
Both the fundamentals and technicals were bearish for prices with slow demand trends and increasing supplies telling traders to sell rallies. Now that the report information is public, what do we expect the trade will focus on?
The most surprising – and the most important – figures released in the report were no doubt the quarterly stocks.
Quarterly stocks for corn were surprisingly low with the first quarter feed/residual use rate calculated at 2.073 billion bushels, the largest first quarter total since 2009.
Dec. 1 U.S. corn stocks at only 8.03 bb is 1.617 million bushels below a year ago and argues for demand rationing.
Traders had believed there was no need to ration supplies as exports have been horrible this marketing year so far. The lack of demand will catch up to the U.S. eventually, but for the rest of the winter, the market is going to anticipate a need to rally to ration the demand. This will leave corn in a bullish position. Soybeans did not have a bullish report and once supplies from South America hit the open market, prices are going to have a difficult time in sustaining rallies until our springtime.
USDA reported smaller-than-expected winter wheat seedings. The smaller seedings figure will be bullish to wheat this spring as it places more pressure on the growing season as wheat conditions are already the worst in 25 years and acreage totals are now smaller than expected. Once wheat breaks dormancy, price movement looks to be volatile. Overall the report should lead to corn prices breaking their downtrend and trying to move higher. It tells trades not to sell every rally any longer and look for buying opportunities going into the spring where weather conditions will make price movements volatile.
I don’t see any selling or hedging opportunities for producers given this information and the change in the fundamental and technical trends. I think winter lows are being carved and better opportunities lie ahead for producers.
Corn closed the week $.28 1/2 higher. Last week, private exporters a 102,000 metric tons corn sale to an unknown destination.
In the weekly export sales report, corn sales shows 0.1 mb slated for 2012/13. This is below the 18.6 mb that is needed to stay on pace with the USDA forecasts of 1.15 bb.
In the January supply/demand report, the USDA reported U.S. corn for grain production is estimated at 10.8 billion bushels, up 1 percent from the Nov. 1 forecast, but 13 percent below 2011.
The average yield in the United States is estimated at 123.4 bushels per acre. This is up 1.1 bushels from the November forecast, but 23.8 bushels below the 2011 average yield of 147.2.
Area harvested for grain is estimated at 87.4 million acres, down slightly from the November forecast, but up 4 percent from 2011. Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.
They re-owned 50 percent of the 2012/13 corn crop with July calls.
Soybeans closed the week $.06 higher from last week.
Last week, private exporters announced a sale of 320,000 mertric tons of U.S. soybeans to China; 281,500 mt of soybeans to an unknown origin; and a total of 246,000 mt of optional origin soybeans to China.
In the weekly export sales report, soybean sales were 14.9 mb, this is above the 6 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb.
In the monthly supply/demand report, the USDA reported U.S. soybean production in 2012 totaled 3.01 bb, up 1 percent from the Nov. 1 forecast, but down 3 percent from 2011.
United States production is the seventh largest on record. The average yield per acre is estimated at 39.6 bushels, 0.3 bushel above the November forecast, but 2.3 bushels below last year’s yield.
Harvested area is up 3 percent from 2011 to 76.1 million acres and is the third highest on record. Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14.
They should re-own 50 percent of 2012/13 production with July soybean calls if futures hit $13.35.???
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. He can be contacted at 605-660-1155.
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