The report reaction, which is normally a “one-day wonder” has extended gains for three sessions and made major gains.
For a couple of weeks going into the reports, I heard myself telling producers that this was a big report from the standpoint that it was the only significant fundamental news for awhile, but that I did not expect much reaction to it.
I felt the crop size would not be a surprise. I thought the only surprise could be in the grain stocks, since we might have distorted that by pulling some early harvest corn and beans into the 2011 crop usage.
In fact, when the report was released, at 11 a.m. on Friday, the initial reaction was negative. This likely was a reaction to the crop production numbers. Then, the market came back and went positive, possibly as traders focused more on the grain stocks and the carryout.
The crop production numbers were not bullish, coming in higher than the average guesses by a little. USDA now says we raised 10.78 billion bushels of corn, and this is now the last number.
The trade expected 10.626 billion, with guesses as low as 10.1, but some the highest guess at 10.801. This means the report come in near the high guess. This is based on a 123.4 bpa average, up a little from the 122.4 guess and the 122.3 December USDA estimate. It is also 24 bushels lower than last year’s yield.
The soybeans were less of a surprise, with USDA giving us 3.015 billion when the market expected 2.999 billion. Big Whoop!
However, the market started lower, and only the corn recovered. Soybeans finished off 6 1/2 cents, but the corn rallied a dime. This seems to be because the grains stocks came in at 8.03 billion bushels instead of the expected 8.21 billion.
The soybeans stocks were also a small surprise, at 1.966 billion instead of 1.984.
A little reflection over the weekend seems to have put a fire under soybeans, which were up nearly 45 cents on Monday. March corn also continued to rally, so that currently in early Tuesday trading we are seeing the March corn futures over 7.24, when they were only 6.78 on last Monday.
The remarkable thing is that today, if we stay positive, will be the seventh up day for corn.
If we credit the gains on the USDA reports, what have we learned? That report reaction gets exaggerated depending upon the market before the reports. Corn had been edging up in anticipation of good news, but it was coming from a price that was the lowest since last July. From that low, the market was willing to make a big move on small news.
The beans are now 76 1/2 higher in a few days, and at the highest price in a month.
In the case of the soybeans, South American weather is helping the Grain Stocks news. USDA still reported good yields of 54 million metric tons in Argentina and 82.5 mmt in Brazil, but private forecasters continue to fade that number and the official Brazilian one. 80 mmt and less is the talk, and that is a game changer.
Other news has also been positive to grain prices. The River system is improving, both because the Army Corps of Engineers is progressing well as it removes rock to improve the draft in one section of the Mississippi. Also, rains have improved the river levels. Better drafts lead to full barges and cheaper freight. That leads to better grain prices.
The biggest factor hanging over the market is still drought. The Midwest is still in deep drought conditions, and no amount of snow melt can get us back to normal. We are at the point where Iowa farmers are being quoted as hoping for a wet spring. That is a new one!
Other news is the negative that the ethanol patch is struggling with margins. Some plants are running at reduced capacity. Some are talking of closing. The tanks are full of product, and gas prices are dropping, taking ethanol with them.
Last year we used 5 billion bushels of corn in ethanol production. Now talk is of 4.4, and when I suggested 4.0 to a trader a few days ago, he did not say it would not happen.
However, one thing I heard myself saying the last few weeks is still true. We are trading this market as a short-crop year. The anticipation of a short crop from drought gave us high prices at harvest.
Barring something large and unforeseen, that will continue to be the high for the year. This week is a blip on the short-crop chart.