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USDA reports cause violent market reaction

Agriculture.com Staff 07/02/2009 @ 1:07pm

The USDA reports this week gave the markets a headache, followed by a stomach ache.

The headache came from the broad numbers. The USDA put about 4 million acres back in the planted category, versus the March Planting Intentions report. This makes more sense than the initial reduction of over 7 million acres. High crop prices, lower fertilizer prices and perhaps more optimism contributed to the increased acres. Or did they? The headache starts throbbing with the question "did the USDA have the right numbers in March?"

The stomach ache came from the corn acreage number, which was larger at 87 million acres, the opposite of expectations of a smaller number. It is enough of a shift to take quite a bit of pressure off the market. The limit down move on Tuesday indicated the massive flip flop that is now underway.

The positive price effects of the corn acreage number in the March report lasted for the entire next three months. Anxiety about the wet planting weather only made the market rally more. So the devastation of the cattle/hog/milk industries was worse and ethanol economics were worse. Remember the USDA Grain Stocks report showed less corn demand than estimated. Has the market crimped demand more than necessary? Reducing demand has long lasting implications since livestock producers can not enter and exit production in the short term.

Again, the stomach ache gets worse with the next set of questions that come to mind. Does the USDA have the right corn acreage numbers NOW (remember the survey was taken in the last days of May)? How many farmers abandoned corn planting in the first days of June? When will the USDA come up with the correct number?

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The USDA reports this week gave the markets a headache, followed by a stomach ache.

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