The acreage and stocks report Wednesday really did nothing to change the general outlook of grain markets, as the downtrend continues in all markets.
Corn and wheat ran to new lows on the larger than expected stocks of corn and larger than expected wheat acreage. Corn acreage was actually 140,000 acres smaller than expected (the estimates were almost right on), but the problem was the stocks report showed 190 mb larger stocks than expected. There was an idea that feed and ethanol use of the light test weight corn would show up in this report, but rather than show smaller stocks than expected, instead it showed much larger stocks than anticipated. So much for the light test weight impact!
Wheat numbers were also concerning in that the acreage report was almost 500,000 acres larger than expected. Stocks were about 12 mb smaller than expected, but the acreage number was more important here as it represented over 20 mb extra production from expectations. The market reacted very negatively, running to new lows and closing with 20c losses - very disappointing indeed! This report didn't seem to be so negative wheat, but when the least resistance is lower, lower we go. The wheat trend had already established lower lows for this crop, and lower is the direction we headed.
Soybeans had some friendly acreage news, with nearly 450,000 smaller acres than expected for 2010 prospective plantings. But stocks, in spite of large exports, were still much larger than expected with 63 million bushels more stocks than anticipated. So with loss in acreage (about 20 mb) was more than offset by larger stocks, so net about 43 million bushels additional soybeans were available vs. trader expectations. Therefore, soybeans closed with 9-33c losses. Notably, soybeans went down and tested the old lows, but did not break them (like the corn and wheat). So soybeans are the lone market holding out for a possible stronger market ahead.
Most of the soybean losses were in old crop, with a huge drop in the bull spreads of May/November of nearly 25c today (May down 33c, November down only 8c). The spreads had been favoring the old crop soybeans in a big way, but today that spread reversed fate and smiled on the bear spreaders. Hardly anyone anticipated a smaller acreage number and larger stocks numbers, and the spreads had to reflect that reality in yesterday's market correction.
However, even though soybeans have held onto the recent lows, the direction of least resistance for grains has been lower for the most part. Corn and wheat are signaling trouble ahead for soybeans, and the biggest problem might be the lack of interest in buying corn and wheat, competing commodities for soybean acreage. Soybeans might end up attracting more acres in the end if the corn and wheat keep falling under more and more selling pressure.
Some things we did learn from the acreage report included what happened to the 6 million acres of winter wheat that didn't get planted last fall: 1) Corn acreage will be 88.8 million acres, up nearly 2.35 million acres from last year, and the second largest acreage ever. 2) Soybean acreage will be at 78.1 million acres, up 650,000 acres from last year. 3) HRS wheat acreage will be 13.91 million acres, up 640,000 acres from last year's 13.27 million acres. 4) Cotton acreage will be at 10.51 million acres, up from only 9.15 million last year or about 1.35 million higher. When you add up all the increases in acreage in corn, soybeans, HRS wheat, and cotton we found about 5 million of those lost wheat acres.