The monthly supply/demand report held little surprise for the trade. Typically, the February report does not provide a lot of fireworks and this report followed that pattern.
The market anticipated the report would show an increase in soybeans exports, a decrease in corn exports and a result of increased corn ending stocks, but a decrease in soybean stocks.
The USDA did lower soybean stocks slightly, but not because of an increase in exports, rather an adjustment in the crush figures.
The USDA also increased corn stocks as exports were lowered.
The lack of surprise to the report led the trade to look at weather forecasts and a wetter forecast for South America led to heavy selling by the trade.
In fact, selling intensified by midday when the weather models came out and showed better rain potential for South America.
Soybeans had rallied on the dry weather in January, but our readers and clients know that it’s the rain in February that determines the South American soybean crop. Soybeans are pulling back and relieving the overbought condition of the market.
Traditionally, weakness in prices in February is a great buying opportunity for grain traders and producers.
Commercials have historically bought seasonal weakness in February as a way to get long ahead of the growing season and the uncertainty the growing season brings.
If you have made the majority of your 2012 or 2013 sales, look to use this price break as a way to get long ahead of the growing season.
If the drought is not broken, prices will rally dollars this summer.
Corn closed the week $.27 lower. Last week, private exporters did not report any private sales.
In the weekly export sales report, corn sales shows 6.3 million bushels slated for 2012/13.
This is below the 13.5 mb that is needed to stay on pace with the USDA forecasts of 950 mb.
Corn was pressured by the USDA report as the USDA raised carryout more than expected as they reduced export forecasts.The USDA raised corn carryout by 30 mb to 632 mb as they lowered exports by 50 mb and raised non-ethanol industrial usage by 20 mb.
World carryout levels were increased by 2.05 mllion metric tons thanks in part to an increase in production.
Dryness in the western Corn Belt remains corn’s best bet for a spring and summer rally. The western Corn Belt is locked in a drought and until it’s broken, limited downside risk remains for the corn market.
Upside is limited until the crop is threatened as exports remain poor.
Strategy and outlook: Producers have sold 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 $.21 3/4 lower from last week. Last week, private exporters announced sales totaling 116,000 metric tons of soybeans to China.
In the weekly export sales report, soybean sales were 61.3 mb. This is well above the 3.8 mb that is needed to stay on pace with the current USDA forecast of 1.345 billion bushels.
Soybeans saw double digit losses in reaction to the monthly supply/demand report in spite of the USDA tightening U.S. carryout by 10 million bushels to 125 million.
As was expected by the trade, the USDA lowered U.S. carryout by 10 mb to 125 mb by raising crush figures.
The trade was disappointed the USDA did not revise the balance sheets by increasing exports. Exports were unchanged for the month. USDA raised Brazil production by 1 mmt and lowered the Argentine production by a similar amount.
Bottom line of the report was the lack of a bullish surprise gave way to pressure from wetter weather forecasts.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. Re-own 50 percent of 2012/13 production with July soybean calls if July futures hit $13.75.-
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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