Opening Comments - USDA report thoughts

Markets are called mixed to weaker this a.m. behind a weaker overnight session and ideas that some of the ridging concerns are eroding in some of the forecasts.

In the overnight session corn was down 2-3 cents, KC wheat was up 3, MPLS wheat was up 4, CBOT wheat was up 3, and November soybeans were down 4.  At 8:10 outside markets have a US dollar up 300-400 points at 83.10 on the cash index, crude is up 50 cents at 105.40, gold is down 4 bucks at 1276 an ounce, and it looks like an unchanged start for the stock markets with the DOW futures up 4-5 points.

It was all about the USDA report for about an hour yesterday and then the market quickly went back to trading the weather as it probably should. 

Here is a recap from the report; this is from the Van Trump report.

US Carryout Stocks 2012/13 & 2013/14

	July Est.	June Est.	Avg. Trade Guess	Trade Range
2012/13
Corn	0.729	0.769	0.725	0.537 - 0.800
Soybeans	0.125	0.125	0.121	0.104 - 0.135
2013/14
Wheat	0.576	0.659	0.632	0.566 - 0.690
Corn	1.959	1.949	1.896	1.618 - 2.338
Soybeans	0.295	0.265	0.263	0.164 - 0.329

World Carryout Stocks 2012/13 & 2013/14

	July Est.	June Est.	Avg. Trade Guess	Trade Range
2012/13
Corn	123.57	124.310	124.222	122.600 - 127.590
Soybeans	61.52	61.210	60.938	60.185 - 61.300
Wheat	174.47	179.870	179.344	177.000 - 181.030
2013/14
Corn	151.00	151.830	152.404	149.700 - 158.897
Soybeans	74.12	73.690	73.557	69.486 - 75.000
Wheat	172.38	181.250	180.293	175.000 - 183.000

US All Wheat Production

	July Est.	June Est.	2012 Totals	Avg. Trade Guess	Trade Range
All Wheat	2.114	2.080	2.269	2.070	2.015 - 2.140
All Winter	1.54	1.509	1.654	1.507	1.454 - 1.555
Hard Red	0.793	0.781	1.004	0.773	0.730 - 0.808
Soft Red	0.539	0.509	0.420	0.525	0.506 - 0.552
White	0.211	0.219	0.222	0.214	0.199 - 0.220
Spring	0.571	NA	0.542	0.499	0.452 - 0.540
Durum	0.058	NA	0.082	0.063	0.055 - 0.080

Most called it a non-event.  Which maybe it was; but I seen a couple things of interest on it.  First off the China 2013/14 carryout numbers for corn and wheat.  Corn at 54.8 MMT versus 60.9 this present year and wheat at 57.2 versus 61.8 in last month’s forecast.  It seems like we have a smoking gun where China and our grains are concerned.  They have been in for both wheat and corn lately and when you look at SRW sold we are just starting the marketing year and commitments are off of the charts.

The second thing is the wheat numbers.  Very friendly; friendly enough for us to rally without corn or beans helping?  Probably not?  But could wheat maybe add some support to the row crops?  Potentially.  I put it this way it wheat has had a heck of lot bigger carryout numbers the past few years and much higher prices.  But wheat carryout is just one component that goes into helping project a price.

The other thing that stood out to me on the report was the USDA increasing both corn and soybean new crop carryout’s.  Both still over two times the present old crop carryout.  When you carryout’s double to nearly triple you can not consider that bullish fundamentally.  Now it doesn’t mean we have to go down; but it is why some are very bearish.  Looking deeper into those numbers you see that new crop corn supply went down slightly via a smaller starting spot with smaller old crop stocks and few harvested acres.  But the USDA took off more demand than then supply slipped. 

I am concerned in the future that if we do see supply or production slip that the USDA will simply curve demand and thus keep our balance sheet projections fairly big.  At least over the next few months.

Yield left unchanged isn’t a major surprise and it is what they typically do and probably should do.  We have had the weekly crop conditions show a strong up trend in conditions but we have many that are also thinking conditions are over stated.  The reality is that our yields will be determined over the next few weeks/months.  We probably shouldn’t even have a production number before August because it is simply using trend line methods that seem to be broke when you consider the fringe acres that have been added.  These acres added for corn over the past few years are acres that typically hit home runs or strike out.  It adds plenty of volatility to our yield projections.

Longer term the report to me still opens the question to what is fair price for 13 or 14 billion bushel production?  What about a 2 billion bushel carryout with demand 10-14 billion?  I don’t think we know the answer to these questions.   I think proper risk management is warranted; but for me to say that if we hit a 2 billion bushel carryout with a 14 billion bushel crop that we are going down to 4 bucks or 3 bucks; just isn’t known.  I have no good info to know how the funds could react should thinks actually shape out like some have predicted.  We could have a couple dollar downside risk or we might already be more than fair priced.    Way too many components and moving factors to have a good solid pinpoint price.  The only thing one can really do is realize the potential risks and rewards; and how human emotion tends to over move our markets.  We could see things much lower or higher than most think.

The things to watch going forward will be weather.  Eventually we will have to start watching demand; but for now it is all about determining what our supply is.

We are still searching for a reason to get the funds involved and long the grains.

The July contracts do expire at noon today; watch to see if things get explosive for corn or beans.  How tight does the cash market or big boys think things are?  Basis has been a big moving target for both of these commodities and probably continues. 

Sunflower market feels soft with just too many flowers trying to move too quickly.

Please give us a call if there is anything we can do for you.

Thanks