USDA: Surprise! Corn market looking better
The Jan. 10 crop report from the U.S. Department of Agriculture ended with numbers that were bullish for corn, neutral for soybeans and bearish on wheat stocks.
Darrin Newsom, DTN senior analyst, looked at the report numbers during a webinar that morning and reasoned that the corn outlook was bullish because of smaller global and domestic ending stocks, increased demand for U.S. corn and smaller-than-expected quarterly stocks numbers.
He called the report on soybeans neutral because of unchanged domestic ending stocks, larger global ending stocks and increased global production.
The outlook for wheat was bearish, he said, because of smaller global ending stocks, quarterly stocks being higher-than-expected and smaller-than-expected winter wheat acreage.
For U.S. corn supply, carry-in was at 821 million bushels, down from 989 mb in the December report.
Production was down at 13.9 billion bushels, with total supply coming in at 14.78 bb.
Feed use was up significantly from the December numbers, with other demand increases in ethanol production and exports.
Corn crush carry-outs were down slightly from their predicted numbers. The USDA reports the average corn price for 2013 at $4.40 per bushel.
“For weeks now the corn market for 2014 has been moving on the idea that we were going to see larger numbers,” Newsom said. “It’s been grinding to new lows, which could be attributed to the fact that USDA lowered its (national average) yield from 160.4 in December to 158.8.
“Maybe this is more realistic. I don’t know if this is set in stone, but it’s what the markets are reacting to, and it’s what we have to work with.”
Supply and demand estimates for U.S soybeans earmarked production at 3.8 bb, up somewhat from pre-report estimates, with total supplies coming in at 3.45 bb, up slightly from pre-report figures.
Soybean crush showed an increase, as did exports, total use and carry-out. Soybeans prices are also down sharply from $14.40 in December to $12.50 on Jan. 10.
“I will always question what type of accounting is going on in the soybean market,” Newsom said, “but this is what we’re stuck with.
“We increased our production-we bumped up our average yield to 43.3 from the December yield of 42 bpa, so if the markets are truly believing this, this would be bullish for corn and bearish for soybeans, but what we’re seeing this morning is that corn is rallying.
“It seems like traders are buying into the corn numbers,” Newsom said.
Newsom said with corn production it’s hard to get overly bullish with numbers that are so significantly higher than numbers seen in recent production years.
He said there is solid commercial soybean buying, so the market is not shaken by the production numbers.
“Corn yield recovered in 2013,” Newsom said. “It does open the door so when we get into late winter or early spring – and if we start talking planted acres and prospective planting and what trend line yields going to be – if we get to 163 to 166 bpa, all of a sudden it could change the dynamics of the market again.
“I don’t see the March report changing the supply and demand all that much. I think the market will sit back and say it’s seen what the yield is and it won’t worry about 2014 right now, because they have an opportunity to move higher.”
Soybeans are similar, he said, noting that bushels were short of expectations, but are still a solid number.
Newsom said it’s nice to think about corn demand increasing, but he questions the amount by which report numbers say it will increase.
“If we continue to see smaller numbers of cattle on feed, it makes me question the ability for us to gain a billion bushels of feed demand over last year,” Newsom said. “I think we have to wonder where the billion bushels of feed demand is coming from.”
Newsom said the corn export number remained the same at 1.45 bb.
“The interesting thing to me is that we’re running 3 to 4 percent behind this number now, so the USDA may be wanting to give it some time to see if its own weekly export shipment numbers catch up later in the market year.
Feed use and exports seem to be overestimated at this point,” he said.
Newsom said when the South American soybean supplies begin to ship out, U.S. producers could see their demand start to ship out as well.
“It could be a real problem and real possibility. Certainly it’s something to watch,” he said.
Newsom said jumping the U.S.corn demand by 13.15 bb is a bullish sign.
“We’re starting to grow demand faster than expected,” he said. “At least for now we’re showing demand coming back even though we’re increasing supplies.
“With supplies moving up after the last three years, it seems to breathe life back into the demand market, and it may not be as dead as I have been talking about.”
Newsom said that with soybean ending stocks climbing and endings stocks to use remaining unchanged at 4.5 percent, it’s something the market is getting used to.
“If we look back to the 2003-04 marketing year, we were in the same ranks,” he said. “There could be some number-massaging here, but it’s just part of soybean market. But at least the soybean market remains relatively tight from the domestic side.”
He said U.S. markets suffer from a glut of wheat on hand, adding that exporters need to find ways to increase demand for U.S. wheat and move stocks.
On the global side, carry out corn came in at 160.23, down from last month. Total use is pegged at just under 940 million metric tons, an increase from last month.
“Domestically we saw a similar situation, but with increasing demand and tight ending supplies and tight ending stocks, it’s adding plenty of support to the market,” Newsom said.
He said it’s interesting the total soybean use didn’t change much, but that total supplies jumped to 347 mmt, up from 345 mmt, and that total production went from 285 mmt to 286 mmt.
Newsom called this the “court jester” of reports. Corn figures were down and soybeans were up slightly. He said it seems strange that corn was dropped from 2.17 bb to 1.04 bb, but he said it may be attributed to questionable production numbers.
Newsom said corn had a decent first quarter due to ethanol production.
“Feed demand could enter into the picture,” he said, “and if so the numbers could change, but through the first quarter we saw solid domestic demand and overall demand helping support the basis market.”
Bean stocks saw a solid first quarter demand. Newsom said he’s not looking for a big drop-off in soybean demand, but if U.S. growers struggle in the soybean market, it will most likely be in the second half when South American crops are moved to port and play a bigger role in the global market.
Newsom said he sees promising signals in market trends.
“Volatility is low, trade interest has picked up among non-commercial traders-along with the fact that we’re seeing some bullish technical signals,” he said, “possibly indicating that trend of the corn market could be going up. If it does we could test a $4.70 to $5 mark for corn, but it will be tough because there is a lot of cash corn waiting to be sold.
“If the market moves up it will generate a lot of cash sales. Look for the basis to start to sag and future spreads start to strengthen.
“Both are indicators that we’re starting to see cash sales start to break loose, limiting the possibly of the amount of rally we could see in the futures market.”
He added that soybean trends rallied early, but the $13.30 level has been difficult for the old crop market to get through.
“It needs something to push it higher,” he said, “but it’s still solid and still indicating that the short-term supply and demand situation is bullish.
“I think it will be enough to move beyond the $13.30 level.”
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