USDA report came in fairly close to pre-report trade estimates.
Below is a rundown of the actual numbers.
My thoughts are overall neutral report; things that stick out to me as we go forward however include the wheat production. They have Kansas fairly well below the crop tour but overall they have wheat production in line with estimates. From what I am hearing in the rest of the parts of South Dakota they have our state overstated. Also I would comment that small crops get smaller and I look for that to happen to wheat as we go forward. Now how much of an offset spring wheat and SRW are remain question markets.
They have our corn yield at 158 for new crop; that to me isn’t out of line. Some will argue that it isn’t enough of an adjustment versus the late planting and other bulls will mention that we have too many marginal acres. I won’t argue with either point; but I would say that 158 is an ok starting spot; with good weather it can get bigger and plenty of reasons for it to get smaller too. That puts their production number a hair over 14 billion bushels and this is where my concern comes in at. A 2 billion bushel carryout after……….after we increase demand nearly 2 billion bushels from this year????
What happens if we can’t actually increase demand by the nearly 2 billion bushels? Ethanol usage up to 4.85 billion bushels next year might also be questioned with the blend wall? Feed usage nearly a billion bushels more? I didn’t realize herds could be increased that fast?
New crop prices averages for corn 4.30 to 5.10……….does that include the higher priced stuff that was pre-contracted back in August/September?
Bottom line is we will need to have very strong demand if the production estimate is any place near the 14 billion as pegged today. Maybe that is a big if that our production can be that high; but from where I stand it isn’t much more than a coin flip if it is higher or lower than that. Now if in 2-3 weeks we still don’t have the corn planted I could see that production slipping; so I think weather forecasts will be fairly important. Sunday nights forecast might be more important than what today’s report showed.
Same type of comments could and should be made about the bean balance sheet for new crop; increased demand via increased exports and increased crush numbers but also with much lower average farm prices of 9.50-11.50. Under 10 beans won’t taste very well to many.
What also has to be considered strange or raise yellow flags is our pace in exports versus projections. Presently for new crop sales already on the books we are ahead of last year for wheat while corn and beans are behind last year’s pace. But year over year the USDA is projecting corn exports and bean exports up next year versus this year; while they projecting wheat exports down from this year to next. Granted it is early as we are not even in those marketing years and in the case of soybeans and corn we are months away. But at the end of the day the USDA said expect to see corn and bean demand increase for exports with wheat demand expected to get softer.
I have heard some talk of stress on some areas growing wheat such as Ukraine, Russia, and Australia. But today’s report has big increases year over year for their wheat production. Perhaps it is something that can give us a bounce in the future?
The other thing the USDA didn’t do was acknowledge the old crop tightness situation in soybeans and corn. I think they still have some firework potential as we really haven’t seen much for a slowdown in soybean demand and corn demand for ethanol now has been up a couple months in a row and margins continue to improve.
As for price action around 12:30 grain markets are still in the red with corn down 13-14 cents, KC wheat off 17, MPLS wheat off 14, CBOT wheat off 19, and Soybeans off 6-13. The majority of that weakness was before the USDA updated Supply and Demand Report came out; it seemed to be from a risk off day for the commodities with crude down a couple bucks and gold under pressure. Today’s report wasn’t bullish enough to tell the “big money” to go out and buy the grains and honestly I think today’s report sets the stages for the normal seasonal price patterns to happen. For corn that means we keep some weather premium in; but if we don’t have hiccups we need to go lower to promote the increased demand that is forecasted.
Here is a link to a CHS Hedging recap.
Below is recap; coming from the Van Trump Report.
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Jeremey Frost
Grain Merchandiser
Midwest Cooperatives
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