USDA report gets ho-hum reaction from market

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Standing corn in snow
Farm and Dairy file photo

Last week, I warned you that the World Agricultural Supply and Demand Estimates would be released by the U.S. Department of Agriculture Dec. 8. This usually is a non-event that just looks forward to what we call the Inventory Report in January, and recites numbers that are mostly in the market already. In other words, there is little to surprise us.

Well, Friday came and went with some small revisions, but no big reaction in the grains. There was a little reaction in Chicago wheat futures, but that has more to do with export news than production since the production numbers have been pretty well known since the August report.

Chicago wheat did gain 29 cents last week, even after losing as much as 11 cents Dec. 8. Then, we saw trading Dec. 11 that lost 22 1/4 cents in the March contract. So, we are not up much net at all after the report.

March corn futures have not done much in the last few days. We were only up 3/4 cent for last week, and we lost 4 cents Dec. 11. The overnight was up just a penny.

The news in corn may be that the funds (specs) are buying back some corn positions, but they are still short 160,000 contracts according to the Commitment of Traders report. The WADSE report detailed an estimate of 25 mbu more exports, but also more production.

They put our domestic carryout at the end of the marketing year (Aug. 31) at 2.131 billion bushels. Globally, they expect an increase of 1.3 MMT of production, which does not help prices. Half of the increase in production comes from Russia and China.

The soybean markets saw some fireworks in recent days. The summer high was $14.41 for January futures. The recent low was Dec. 7, at $12.92, a loss of $1.49 in less than five months.

January futures were down 4 cents Dec. 8, but had a 21-cent range. That makes an interesting day, but timing for the day traders would have been everything. Last week, January was off 21 cents, but Dec. 11 it was up 21 3/4 cents. In other words, we got back the week’s losses in one day.

To show how the corn and soybeans are trading at odds, the spec funds are liquidating longs in January soybeans. They sold off 31,000 contracts to now be net 36,633 long.

A note on spec funds

They can move the market on individual days, but the big influence is in the fact that they are fickle. They like to get in and out of the market and could liquidate the rest of the longs any day they get spooked by a piece of news or trading that goes against them for a short period.

The commercial hedgers, mostly elevators and processors, are on the other side right now. They are closing their short hedges and are now net short 116,000 contracts. This is a reflection that, at this lower price, they are willing to take a little more risk and have some bushels unhedged.

The WADSE report did almost nothing for our U.S. soybeans. The carryout is still estimated at 245 million bushels. The average trade guess was a little lower, at 243.

Even though dry weather has caused a cut in the Brazilian crop, it will still be a record because of increased acres. USDA puts the Brazilian crop at 5.915 billion bushels. The average trade guess here was for 5.884 billion bushels.

Argentina will harvest 2.165 billion bushels. Our trade guess was 2.159, not much difference. The world carryout supply was estimated in the November report to be 4.207 billion bushels. In fact, USDA now expects that to be a little less, at 4.196 billion. The trade guessed 4.143 billion.

As I write this, it is coming up on Dec. 12. That means we have just a little under two weeks until Christmas. This is the couple of weeks on the calendar that are traditionally dull in Chicago. I am not sure if our current computer trading has the same trend, but when the trading was all in the pits, there was a notable lack of crowding in the grain pits.

These are the two weeks that traders take off for family reasons. The trading will fund skiing trips and cruises, and some will come between Christmas and New Year’s. It is very unlikely that we will see much more than position maintenance the rest of December.

Only some serious news would affect the market, and then mostly as an overreaction until traders get back on the job or try to manage trading from a phone line in Austria or Belize.

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