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USDA hands market July 4th gift

Agriculture.com Staff 06/30/2006 @ 1:03pm

On Friday morning, the USDA delivered a nice 4th of July present- lower acreage numbers for both corn and beans. Corn acreage is now forecast at 79.366 million acres, down from 2005 seedings of 81.759. Soybean acreage came in at 74.93 million (compared to pre-report estimates of 75.13) March seedings of 76.895 and year-ago numbers of 72.142.

In some ways, it appears the market was braced for a negative report. When negative numbers did not appear in either the acreage or the stocks data, prices saw a good boost on Friday. At midday, corn was trading up 6 cents and beans up 16.

The grain stocks data did not deliver any big surprises. Friday's stocks number for corn at 4.363 billion bushels was right in line with pre-report estimates of 4.362. Soybeans at 0.99 billion were just below pre-report estimates of 1.012 billion. Wheat at 0.568 was up slightly from average estimates of 0.548, but overall, this was not a big change.

So what does all this mean? Not a lot. Acreage numbers are always of great interest but of little importance. I always like to point out that one good rain across a few Midwestern states in the middle of summer means way more than a million-acre swing in corn or soybeans. Stocks numbers can be a big deal but are seldom a big surprise.

The market looks like it was simply evening up after a big price slide in recent weeks. The fact that overall acreage numbers were better than expected offered some support. It was also the end of the week, end of the month, end of the quarter and the day before a holiday weekend. That had to cause some evening up, and after such a big decline, that means a bounce. Also, looking back over the historical charts, it is not unusual to see prices crash into the 4th of July and then rally out of the 4th of July.

On the other hand, if prices rally into the 4th, they crash after the 4th. We just saw kind of a bloodbath, so if there is a trend change here, the only way it could be is up. While there is some rain forecast over the holiday, there is talk of a ridge building after that, which certainly helped offer some support also.

The final factor influencing price activity following the USDA reports was the fact that a lot of the outside markets, such as gold, showed some strong indications of turning back higher. A lot of the bullishness we have seen in the agricultural complex in the last year or two can be attributed to long-term buying of all base commodities. So the spillover influence of rallies in other commodities certainly offered some help.

What can you look for now? Historically, corn typically grinds lower for the next couple of months. Our statistical analysis shows there is probably 60% (if not 70%) odds of lower prices over the next few months. That data means nothing, though, if it gets hot and dry. It all depends on the weather. It is hard to kill crops these days. The hybrids are so resilient, it appears that corn can almost grow without water. However, demand is so big, we need almost every potential bushel to match demand. Any threat of reduced yields will certainly put the gas pedal down on price rallies for corn.

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