The grain market’s new news is bad news


I was right, and I was wrong.

A week ago, I said that there was a gap on the corn market up 55 cents, and that was a good target for the market to get to. However, since the market had gone up over a dollar, it was just as likely that we could get a downward correction for 50 cents.

I also said the next big fundamental news was the March 31st USDA Prospective Planting Report.

Well, the next fundamental news turned out to be the final USDA Crop Production Report and the Supply and Demand Report that were released Monday. So, I was wrong.

And, the reports were very negative to the markets, so I was half right, but unhappy.

Crash and burn

Prices crashed and burned Monday, and mostly are showing follow-through Tuesday. This is the biggest correction in a long time, and it is unwanted by anyone trying to buy grain or anyone trying to sell grain.

Corn was down the 30-cent limit and is down 7 1/2 cents overnight as this is written Tuesday before the open. Soybeans were down 83 1/2 cents on the January, but most cash traders have switched bids to the March. That was down “only” 70 cents, with a 4-cent bounce overnight.

March wheat futures declined 70 cents Monday, with a 3-cent dip added on overnight.

Larger crop

The USDA numbers tell the tale. USDA raised the corn production to 12.101 billion bushels. The trade expected the crop to be smaller, with an average guess of 11.975. The new number is actually 81 million bushels higher than last year! Who’d a thunk it?

In the process, the carryout was raised to 1.790 billion, and the quarterly stocks were raised to 10.084 billion. This is a lot of corn to get rid of, and the market immediately decided we needed lower prices to do it.

Soybeans were a similar issue. What DTN analysts described as the biggest surprise in the report was the increase in the soybeans carryout. There, we are projected to have ending stocks of 225 million bushels, when the trade expected 185 to 205.

The crop size was given as 2.959. That, also, is an increase above last year of 38 million bushels.

Just to complete the trifecta, world wheat ending stocks were increased by 1 million metric ton, so wheat took a beating,

Now what?

Now what happens? First, we must always assume the reports are correct, even if we suspect otherwise, or are cynical about the government moving the markets. I think neither, but I know what the farmers I am talking to this morning think. The market will adjust to the USDA projections.

Second, the correction off a report is always fast. Hence, the limit moves yesterday. Today there will be some jockeying, and hopefully it will all be over. Then comes the challenge of re-writing the market plan, starting from here.

We do not have big spec funds pushing these markets, as the money lost in the stock market is hurting the money coming into Chicago. Those markets are investments, and the losses are horrible. Our markets for the specs are purely a gamble, not an investment. They are staying away.

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