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Mystery corn bushels?
There is a very simple comment after Thursday’s USDA reports and the trading day. There are many, many more bushels of everything around than traders thought!
The stocks report was the driver of trading action Thursday. It showed 380 million bushels more corn, 65 million bushels more soybeans, and 50 million bushels more wheat than the pre-report estimates. The figures for corn and soybeans were larger than even the largest estimate.
The stocks numbers, issued quarterly, have ended up being the most volatile numbers for the market to trade. Limit moves have become common, and Thursday was no exception. For corn, ethanol production and exports are known, so basically it is feed/residual that ends up being reduced to make the numbers balance. So the feed/residual number for the December-February quarter ends up being very, very small -- something like 1.080 billion bushels vs. 1.543 billion a year ago.
Chances are feed use did not decline that much. But the reason for the number will remain a mystery. The USDA does the largest and most comprehensive survey, but there will still be errors. Maybe it’s the 2012 crop size or maybe it’s one of the stocks numbers. The market will live with the data until the next report simply because it is the best data out there.
With more corn supply than people thought, there is also less upward pressure on price and less rationing that price has to do in the future. In some ways, the market will argue the relatively high prices in the quarter forced the needed rationing to take place.
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.