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The bulls take control of corn
The USDA report was everything we expected but one - the corn stocks showed domestic disappearance is still at a an unsustainable pace.
While USDA raised corn and soybean production as we expected, they also found less corn stocks on-hand than expected, and thus we needed to raise corn feeding a huge 300 million bushels, and that just about saps up the remaining corn stocks!
While production was hiked 55 mb in the corn report (higher yield by 1.1 bu/acre, but 300,000 less harvested acres), the much larger feed use forced USDA to cut exports by a huge 200 mb. Thus, that left corn stocks 45 mb smaller than last month and back to only 602 mb - basically pipeline supplies. Apparently, the US is still using feed at an unprecedented pace, given high corn prices. The cattle feeder must not mind feeding $7 corn! That was a huge surprise in the report, and propelled corn 60c higher since the report Friday at 11 am.
Corn now sits above $7, with a huge upside daily and weekly reversal higher that has also turned the technicals higher as well. Indeed, the bulls did get control back in the corn market.
Now soybeans did not have a bullish report, either, with yield hiked 0.3
bu/acre to 39.6 bu/acre, just slightly below last year's 41.9 bu/acre.
We also raised harvested acres by 400,000 acres to 76.1 million, leaving production up 44 mb from last month. With exports hiked 35 mb and residual up 4 mb, that left ending stocks at 5 mb higher, at 135 mb.
This was not bullish soybeans, and applied pressure to soybeans on report day. But dry weather is emerging in southern South America, with southern Brazil and Argentina both developing a dry spell in early
January that is looking like it could adversely affect the soybean crops
there if that weather continues.
So far, the forecast has been steady for the past week, and therefore soybean prices have risen as well, up about 71c/bu, or about the same as corn, since last Friday's lows.
Wheat remains a follower of corn, but it is important to note that if
corn stocks are near zero at the end of this year, wheat stocks may also be near zero as we might need to feed wheat to get through the corn feeding period as well. Wheat has risen 48c since the report lows as well, mostly following corn higher. Encouraging HRW wheat rains the past week, though, have probably helped alleviate some drought worries in HRW wheat country, but so far that doesn't seem to have drug wheat down any.
Instead, the attention on the bullish corn stocks and need for feed wheat seems to be propping up the wheat market in spite of the improving rainfall the past few weeks in HRW wheat country (the first big rains in weeks!).
So, grains are getting a boost, especially in old crop months, as corn use continues to defy expectations as there aren't any cheap alternatives to corn feed use. So prices bounced higher, but what might be more critical to corn now is whether or not that strength can be sustained. Perhaps it will be South American weather the next few weeks that will have more to do with price direction of grains than any other factor. After all, the US situation seems to be well at hand now given our terrible drought in 2012 that sapped 25% of corn production from 'trend' yields. But if South American can come through with a good crop, maybe we can allocate the shortage over until another US crop is harvested. But if SAM doesn't come through and drought once again saps SAM crop production in Jan and Feb., then upward we must continue on the grains.
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