USDA final report in sight
Volume has been lower across the board throughout the holiday season, but it is highly likely to increase ahead of the January supply and demand report that comes out Friday, January 10th.
The funds are carrying short positions in both the corn and soybean markets. There is a chance we could see those positions reduced as we head into the report. This release will include the final production numbers, monthly supply and demand estimates, as well as the December 1st grain stocks. This is the most anticipated release of the year but even more skepticism surrounds the accuracy of their figures this year due to the challenging year. Expectations are to see revisions made later in the year, similar to the procedures after the challenging 2009 harvest.
On the production side, trade is expecting corn to see a decrease.
Historically, when the USDA decreases production in the October report, they typically decrease yield again in the January final report. The average decrease has been around 1.75 bushels per acre. This year, it would point toward a decrease of around 140 million bushels. The January production estimate has decreased from the November report in five of the past six years. Last year’s production was reduced by a large 230 million bushels.
Soybean production is expected to decline in the January release. The USDA has decreased production into the January final report each of the past four years. Last year they decreased their estimate by a large 170 million bushels.
U.S Trade Representative Robert Lighthizer stated last week, the U.S. and China are working towards getting the trade deal signed the first week of January. It was later reported that the deal won’t be signed until January 15th. China has accepted an invitation to come to the U.S. to sign the deal. The formalized agreement between the U.S. and China would include rollbacks on tariffs and increased purchases of agricultural goods, however, several details are still unknown.
Soybeans values have seen considerable strength in recent sessions, with support in the market coming for trade deal optimism but another factor has been spillover from the strong soy oil markets. Malaysian palm oil production was significantly lower than expected, providing a sharp increase in demand for soy oil as we start the new year.
South American weather is also lending support to soybean futures. Weather in Argentina is improving, but concerns of Brazil’s production are starting to increase. Rainfall in Brazil has been rather sparse the past two weeks. Almost 90 percent of Brazil has received below normal rainfall over the last two weeks, and 60 percent seeing less than normal rainfall for the last two months. Rain is in the forecast for Brazil in the near term, but there are still concerns that a high pressure ridge could be forming limiting rainfall totals. Trade will be monitoring forecasts closely.
A recent study, by FC Stone, looked at price history of the new crop December corn futures contracts, as well as the new crop November soybean contract. December corn futures over this time averaged $1.21 cents, and November soybean futures average range was $3.24 cents. The tightest price ranges over this time period were 82 cents for corn and $1.40 for soybeans, both occurring in 2017.
FC Stone also looked at the price action for the July corn and soybean contracts. It was noted that in the past five years from January through June, the average price range from low to high for July corn was 78 cents. The soybean average was $2.23 over that same timeframe.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
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