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Report impact lingers

The USDA released numerous reports this past week and they all had a dramatic effect on the markets. The big question now is, can we believe what the report told us? There definitely were some major surprises in the reports. Progressive Ag has been saying that once the US has a stocks building year, the markets will struggle. No one thought that year would come so soon as after the release of USDA's Jan Annual Crop Production report, all of the major grains (wheat, corn, and soybeans) are now having increasing stocks over last year.

Starting with wheat, it was not a surprise to see winter wheat seedings lowered, most of the trade had expected acreage to be cut by at least 2 million acres. But USDA took it another step by cutting the acreage by over 4 million acres. This took the market by surprise and actually makes the 2009/2010 crop year wheat a little friendlier. It also means that any acreage increase needed must now come from the Northern Plain states. The only region left to plant wheat is the Northern Plains. Currently wheat does not look favorable in the breakeven analysis. So if wheat needs to acquire acreage it is going to have to bid for it. Old crop wheat does not have the same potential of course due to poor demand. The only possibility left for old crop wheat right now is that demand can improve if SA continues to have weather concerns and has a lower wheat crop than expected.

Everyone was looking for the corn numbers to be bearish, but most traders were expecting to see USDA increase corn stocks by less than 150 to 200 million bushels. But instead USDA cut demand so severely that we saw another month where corn stocks increased over 300 MB in one month. The result is USDA increasing corn’s ending stocks by over 600 MB in just two months. That has also taken the corn market from just comfortable stocks to a no worries sized ending stocks estimate.

Note there are some demand numbers one could have issues with. Like feed demand. USDA cut corn feed demand in the Jan report by 50 MB. They also cut wheat feed demand by 30 MB. Barley feed demand was not changed.

So with one of the worst winters in recent memory taking place, and with very little change in the livestock numbers, USDA cuts feed demand. That surprised a lot of traders. Also cut was ethanol numbers. This was not much of a surprise due to all of the bad press plants have been getting lately. But it is hard to imagine that with all of the plants constructed last year and with so many due to come on line this spring, that corn demand for ethanol will only increase 550 MB over last year. The other issue that has to be dealt with in corn is unharvested acres. Of course this is a very small issue as it only pertains to corn in the Northern Plains, but a bushel lost is still a bushel lost. Conservatively one could estimate that between ND, SD, and MN there are about 400,000 to 500,000 acres left to harvest. Using an average yield for this area that still amounts to 67.5 MB unharvested. The reports did make old crop corn potential limited.

The biggest surprise came in the soybean numbers. Most were expecting soybean stocks to be cut slightly due to an inevitable increase coming in soybeans export estimates. What no one saw coming was a slight increase in production. USDA had either left production unchanged or cut slightly over the past three months with end of year field reports showing a less than expected crop coming in from most regions. But USDA did manage to find another 38 MB and that was added to the production estimate in Jan. The soybean export pace has been so strong this year that with only a quarter of the soybean market year complete, soybean export sales were sitting at 75% of USDA's projected pace and shipments were at 50% of USDA's expected pace. This was a good indication that USDA had to increase the export pace by at least 50 MB, with further increases likely to be made in later reports. But as has been the pattern, USDA cut the crush estimate to offset some of the increase in exports pace. Sure domestic crush has been sluggish, mainly due to lower demand for veg oil products for energy, but this will turn around once the energy sector turns around.

Overall, the report had more bearish surprises than bullish ones that resulted in a market meltdown on Monday. It will take time to recover from the hit, but so far the market has made an attempt. This has been a year when USDA reports have helped to move the market, good or bad, more than any other year in recent memory. This could be due that fact that 2008 was one of the most volatile years in recent memory for the commodities and weather. In any case, USDA is still the best source for unbiased crop production estimates and one that the trade has to use to base market direction on.

The USDA released numerous reports this past week and they all had a dramatic effect on the markets. The big question now is, can we believe what the report told us? There definitely were some major surprises in the reports. Progressive Ag has been saying that once the US has a stocks building year, the markets will struggle. No one thought that year would come so soon as after the release of USDA's Jan Annual Crop Production report, all of the major grains (wheat, corn, and soybeans) are now having increasing stocks over last year.

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