Markets clear as mud
Grain markets seem about as clear as mud today, with the wheat market flashing signs that a market top has already been scored for this late spring period, corn flashing possibilities of that today (downside reversal), and soybeans still a bull market. How can all 3 of these different viewpoints possibly be right at the same time?
USDA stirred up this cloudy picture today, with a monthly report that was bullish corn and soybeans, and neutral/bearish wheat. They cut US corn yields 2 more bushels below trend, recognizing the difficulty planting this year's crop. They also cut US and world ending stocks of corn, and this bullish indication was met with a huge 'thud' by the market, starting higher and then running to big 8+c losses in a downside reversal. But buried beneath the numbers was also a continued sign of demand destruction, this time on the feed side, as USDA cut both corn and wheat feeding in this months report. Livestock prices have been battered by the poor economic news, and that will have repercussions on feed demand the coming year (especially hog feed use).
The wheat production number was lowered 10 mb, but the use number (feeding) was cut 20 mb to leave a net rise in US ending stocks. World ending stocks were higher, with the biggest gain in Russia (which offset the major exporters' cuts in ending stocks). That left wheat unimpressed, and in front of the majority of winter wheat harvest, prices fell under their own weight today. Wheat prices have now dropped about 12% from their highs just a few weeks ago, meeting the Pro Ag definition of a trend change and potential top.
USDA also cut soybean ending stocks (both US and world), leaving a slightly friendly outlook for soybeans. We are now down to just 110 mb carryout projected ending this year, an easy indication that ending stocks are basically pipeline supplies in front of the new crop harvest. Old crop soybeans continue to lead the bull market forward, with new highs today (which is starting to sound like a broken record). How far this bull market can go is anyone's guess, but given the strong market it could be surprising how far it could go (how about last summer's highs?). For the 2009 marketing year, USDA projects a midpoint price range of $10 soybeans, $4.30 corn, and $5.40 wheat.
Actually, come to think of it, perhaps USDA helped to clear up the cloudy picture in grains! Soybean demand seems to continue to expand while the supply chain hasn't geared up enough to meet the expanded demand, so hope springs eternal in soybean prices. But feed demand continues to contract, a problem for both corn and wheat prices. With wheat harvest around the corner, wheat prices are feeling the additional pressure of potential harvest sales. Perhaps wheat is just the first grain to turn lower?
If so, perhaps it follows that going with wheat eventually will be corn, a feed grain powerhouse that must take its cues from feed demand (its largest demand source). Soybeans might still be in a league of their own for the bulls, as long as old crop prices continue to dominate market movement there. That leaves the possibility of a few more months (2-3 months???) for prices to continue to run higher. But the gravitational pull of wheat and corn may make it a little tougher sled to ride in the coming few months.