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Big blow delivered to ag commodities

The market was focused on the crop reports this week, and those reports delivered a big blow to the grain bulls. We had the quarterly stocks report, the monthly supply/demand report and the winter wheat plantings report all released on Thursday morning. Most of the numbers USDA handed out were bearish, and the grain complex took a big hit in response. 

A look at the numbers. The stocks report for corn was one of the big surprises, with total stocks as of Dec 1 at 9.64 billion bushels, 250 million more than the average estimate. Wheat stocks were 1.66 billion, 35 million less than expected. Soybean stocks came in at 2.37 billion bushels, 50 million more than estimated. 

Winter wheat plantings at 41.9 million acres were 1.0 more than expected and 1.3 million more than last year. Hard red acres were up 1.6 million from last year at 30.1 million, which were 700,000 more than expected. Soft red acres were down 190,000 from last year at 8.37 million but still 600,000 more than expected. White wheat acres were down 120,000 from last year at 3.49 million, 170,000 less than expected.

It appears that, despite poor planting conditions in the southern plains, record high insurance guarantees were enough incentive to get farmers in the field.

The monthly supply/demand report also added a bearish slant with USDA increasing, rather than decreasing, corn yields by .5 bu/acre, taking total production to 12.358 billion bushels, up 48 million from last month. They did raise export projections by 50 million bushels (1.27 MMT), expecting to see more business come to the US after lowering Argentina’s production outlook by 3 MMT and lowering their exports by 1.5 MMT.

World wheat production was increased by 2.5 MMT, and ending stocks raised 1.5 MMT. Most of the production increase came from Kazakhstan, which was up 1.5 MMT. Wheat feeding in the US was lowered by 15 million bushels to 145 million, and exports at 950 million were adjusted back up 25 after lowering them 50 last month. US wheat ending stocks were at a comfortable 870 million bushels. 

Corn ending stocks were lowered by just 2 million bushels to 846 million. Soybean ending stocks were raised a hefty 45 million to 275 million. 

Egypt purchased another 180,000 of wheat this week, 120,000 from France at $258-260/ton FOB and 60,000 Russian at $266/ton FOB. It is interesting to note that for the second week in a row, French prices are cheaper than Russian prices. Also, Russian prices were another $3 higher than last week, which takes their rally to $17 from last month, which equates to about 46 cents/bu. 

Russia had been the world’s price setter for the last several months. This notable bounce in their export price and the fact that they are no longer the cheapest wheat in the world suggests that their relentless undercutting is finally over. No doubt, there will still be plenty of competition among the exporters but the constant downward pressure should be behind us. 

I continue to look for world wheat prices to stabilize and trade in a range through the winter, which is basically only a couple more months. The lower end of the range should be the December lows, and the topside it at least the October highs, and very possibly the high on January 3. As usual, once we get into mid-March, then weather will become the primary price driver.

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This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss. Past performance is not indicative of future results.

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