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Exports will need to be realized, analyst says

It's the first USDA Report in modern history to take 60 days in between reports (especially during harvest). So the yield information took on a new importance in last Friday's report.  

Questions lingered: Would USDA find yields as good as private estimates? Would yields come in as low as traders' expectations?  

The result was surprising, as USDA hiked yields aggressively and above expectations, and yield is usually the most important part of this report since they're getting to be rock solid with harvest almost done.  

However, the attention shifted quickly from the yield hikes and production hikes (which occurred in all grains) to the demand hikes USDA also made in these reports.  Basically, hiking soybean yields 4% was totally offset by lower acreage and increasing demand.  In fact, with production up 109 mb, USDA hiked demand 110 mb. (Matching them up perfectly?)  

We are still seeing some follow-through strength from the USDA report Friday, which produced an upside daily reversal in corn (which had the most strength yesterday). In the USDA report Friday, USDA reported more production of everything, but that extra demand would suck up virtually all of the extra production. USDA estimated corn production up 146 mb (slightly smaller than expected as acreage was cut 1.9 million acres, more than expected). Yields were 160.4 bu/acre, larger than expected (159.4 bu) but increased demand (feed and exports) meant carryout was only hiked to 1.887 billion bu, up only 32 mb from September. Soybean production was hiked 109 mb due to larger yields (43 bu. vs. 42.5 expected) and smaller acreage (-700,000 acres vs. 500,000 expected). But once again, they hiked demand (30 mb crush and 80 mb exports) to more than use all the extra production. This left ending stocks of soybeans at only 170 mb, only 20 mb larger than last month and less than expected (183 mb). Is USDA saying that whatever we produce, we can sell and get rid of?  

Sorghum production also was hiked 20 mb, 15 mb larger than expected.  An odd result was increased wheat production as well (up 16 mb) but increased wheat feeding (30 mb) was added in spite of larger corn production and much cheaper corn than wheat. Even wheat stocks only were up 4 mb to 565 mb (but larger than expected at only 527 mb).  So we can use up any and all extra wheat production, too, even with cheap corn discouraging wheat feeding? 

Some of the demand projections may be hard to swallow, but for now, the market is taking the strong demand projections by USDA and taking them as gospel.  

However, it's the production numbers that should be considered gospel - and how we get rid of this large production is still to be determined (if at all).  

Pro Ag remains bearish, but we did take off the first 25% of corn hedges at 4.25, taking $2.12 profits from our first hedges at $6.37 Dec. Final Pro Ag downside price targets are $4.25 Dec corn (which was hit last week), $11-$11.10 Nov. soybeans, and $6 CBOT wheat.  We tried getting another 25% of corn hedges off at $4.29, but if you did not get another 25% of corn hedges off Monday at $4.29, target $4.26 to get it done (upside reversal on report day Friday).  

Pro Ag notes that increased supplies of everything and more ending stocks of everything in the Nov. report is not necessarily bullish long-term as the market reacted, especially since the demand projections are just wild guesses at this time.  But with the upside reversal in corn, it's possible there will be some follow-through strength before we bump up against resistance.  Remember, the final production estimates won't come until January, but it's likely the yields will be hiked again in that report, putting even more stocks available to the marketplace of corn and soybeans.  

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