We are into this new trading regimen where we get to see the markets flash after USDA report releases and then stories come across the newswire telling how corn and soybeans responded to the reports before we got to see any of the report data come across the newswire.
The way this information is released creates a dishevel playing field that common sense says that they should fix. It is not hard to do. Just suspend trading for a short period of time when USDA reports are released.
We have learned that not everyone has the same access to the information highway and that computer traders have taken advantage of even milliseconds of difference in access to trading exchanges. It takes time to bounce signals off satellites.
The newswire started delivering June USDA supply/demand report data at 11:02 a.m. that markets were trading at 11 a.m. with most news wire information coming 12 to 14 minutes after the report was released.
We bypassed the newswire to go direct to USDA.gov. While the newswire said that the soybean market reacted bearishly to the report we couldn’t confirm any bearish numbers.
USDA left soybean carryovers unchanged despite the trade expecting a larger new crop carryover.
It also reduced global soybean ending stocks for both crop years from May estimates.
USDA didn’t change acreage or yield for soybeans. It’s not a matter whether both are being overstated, it’s when they make these adjustments that we know are coming. They will wait for the acreage report at the end of the month still working with incomplete information and then revise that into harvest.
The trade expects more soybean acres as farmers give up on corn and plant soybeans instead. I am sure that it is not as wet everywhere as in our region, but I think that we will see some record prevented-planting claims for both corn and soybeans.
Many farmers have incentive to take maximum prevented planting on corn in lieu of planting soybeans on this late date.
A computer-generated color map of dry moments as defined by hours where less than .05 inch precipitation was received since May 1 looks like an extension of Lake Michigan to Sioux City.
We talked to farmers with hundreds of acres yet to plant and zero prospects that fields would carry equipment ahead of the June 15 prevented-planting date.
Last week the forecast was dryer and sunnier than what we got. It goes back to the “rain begets rain” axiom.
Evaporation in wet regions just generates more humidity to trigger more rain. Forecasts are then too dry and sunny. I think that soybean production prospects as initiated by USDA are an illusion. They will adjust them in time when their protocol allows. There will be at least a regional problem for soybean crushers in N IA and S MN next year for supply. We have a 60 cent positive basis now with them offering a 70 cent negative basis for new crop. The new crop basis is going to change probably all the way back to par or better for soybeans. You do not want to price beans for the current new crop basis.
I think that the entire bearish USDA balance sheet based on current acres and yield could blow up on the bears. While Chicago has a bearish attitude the soybean market may well have to surprise them all with a rally to give farmers the incentive to plant the remaining acres of soybeans versus taking crop insurance. September contracts are going to be old crop and there will be spot shortages of soymeal before a late harvest fills the pipeline. The logistics pretty much prevent soybean imports.
On the corn side, USDA did deliver some bearish supply/demand numbers. They increased old crop corn imports 25 million bushel to 150 mb to reflect Tyson’s threat to import corn.
It lowered projected 2013-2014 feed usage by 125 mb, because their previous feed usage estimate was unrealistically too high.
They left 2013-2014 exports unchanged which could be too high, too. Once you lose markets it takes lower prices to buy them back.
They increased 2013-2014 ethanol usage 50 mb from its previous estimate which is up 250 mb from this year.
USDA is expecting the Renewable Fuels Standard to stick around and the blend wall to get knocked down despite House Republican efforts to kill the RFS and E-15.
USDA left corn acreage unchanged and reduced the yield from 158 to 156.5 bpa.
The CME Group economist’s yield model was down to 144 bpa. I think we are still headed for Elwynn Taylor’s 147 to 150 bpa yield forecast, while acreage comes down substantively as well.
The USDA’s current carryover projection is just a place holder until they process more data.
While I am more bullish on corn than the market, it doesn’t pay to fight city hall, so we are waiting for the 40-week cycle low for substantive long positions, sticking with bull spreads.
The market responds to fundamentals on a time schedule and the 40-week cycle says that it could take until mid-July until the market recognizes and accepts the improved fundamentals.
All the USDA did was perpetuate the illusions.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.