USDA reports could startle market

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Prices for corn, soybeans and wheat have continued to go lower over the last few days. There are fundamental reasons that have pushed prices down, but there is also the fear of surprises in the coming U.S. Department of Agriculture reports.

It is a fact that weather forecasts have improved in South America. Brazil and Argentina, the primary nations for grain production, have seen rain salvage their crops at a critical time, so analysts are now moderating their very negative views for grain production there.

In addition, the recent decline in crude oil prices is affecting the demand for corn, since the big swing in corn usage comes from the 10% portion of gasoline that is ethanol.

You get an idea just how negative this current long down trend in corn is when you realize we now are at the lowest price for corn in three years. The soybeans are at the lowest price in two years. Chicago wheat futures made a new March contract low of $5.56 1/4 Nov. 27, but were most recently trading at $5.93. In between, we were as high as $6.49 1/2, so the current decline of more than a dollar is scary. Our best hope for wheat right now is for the spec traders to reverse their positions at this low price.

Report scare

We will get all kinds of numbers from the USDA in our annual data dump Jan. 12. In what are termed “final” numbers, even though a couple of years ago they revised the production numbers several times after January, USDA will give us Crop Production, December 1 Grain Stocks, an updated WASDE and winter wheat “seedings.” (Ever wonder why corn and soybeans are “planted,” but wheat is “seeded?”)

Anything in these numbers could constitute a surprise and rattle the markets. In fact, that is rare for January reports. The production and stock numbers are pretty well-known by the industry, so their private estimates tend to be close to the official ones.

There could be some change in production numbers if USDA changes yield estimates. They have not made any changes since September, and this is where they could do that. We would assume any surprise would be in the direction of smaller crops, and that would be positive for prices.

Report impact

Bryce Knorr, in an extensive article in Farm Futures, recently commented on the trend of January reports. He said that since 2001 we have had higher corn prices after the report 12 times. We have had higher soybean prices after the January report 13 times.

However, the higher prices do not always hang on. In the case of corn, after three weeks we actually had higher prices 13 times. That is, in one year, we had a later reaction after the report was digested by the traders. In the case of soybeans, the higher prices only held 10 times.

If the USDA does fiddle with yields, remember that they have been carrying yield estimates of 174.9 bpa for corn and 49.9 for soybeans. The trade expects only minor reductions from those estimates.

Grain stocks

When we look at grain stocks, we think that USDA could change them, but we are not likely to see much change. Interestingly, Knorr notes that the last corn stocks report had them at 12.2 billion bushels, the largest supply at this time of year since 2017.

Meanwhile, the soybean supply is at 2.9 billion bushels, the lowest supply since 2016! This is the reason that soybeans have frequently traded in a different trend from corn. The corn has been in steady decline, but the soybeans have had ups and downs that resulted eventually in lower prices.

Exports

The other factor that can affect prices is the export progress. In the week ending Jan. 4, we exported 856,597 MT of corn. This is up from 570,000 the week before, but is only half the export of this week last year. We exported for the same period almost 675,000 MT of soybeans, but that is down from the 969,000 of the week before. Again, that is less than half of the exports for the same period last year. The Chinese are still big buyers of corn and soybeans, but not from us.

The wheat story seems to be based on fundamental facts that are not pretty. Again, the big factor is exports. Last week, we exported 491,000 MT of all classes — hard red spring, hard red winter, our soft red winter and bits and bobs from the other classes. That makes our total in this season at 10.13 MMT, but last year at this time, we were already up to 12.1 MMT.

Wheat prices have also been hurt by the good news that rain is returning to our dry Southern Plains.

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