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Ray Grabanski: Traders, long or short?

It's report day this morning as I write this, and much will be said and written about the numbers from today's prospective acreage and stocks report.  

As always, there will be some surprises in this report, and today was no different. Perhaps the biggest surprise was the stocks numbers, which came in much smaller than expected for both corn and soybeans, and should propel both markets higher in the near term, especially the old crop futures (which have been laggards lately).  The demand is a strong sign in the corn market, where it shows feed demand has not abated in spite of historically high prices this winter.  More rationing is needed in the corn market, especially considering the strong weekly export sales this morning at nearly 80 mb (but the unknown purchase of 1 mmt remained in the unknown category, denying us knowledge of any Chinese involvement).   

The Report is considered bullish nearby corn due to the smaller stocks than expected and imputed larger feed use (-170 mb from expectations), but bearish distant corn futures due to the larger acreage than expected (+340,000 acres from expectations at 92.2 million).  Overall, Pro Ag expects corn to trade sharply higher on May contracts, but only moderately higher Dec.  

The report is bullish soybeans as acreage is smaller than expected (-260,000 acres), and stocks were smaller than expected by a large 50 mb.  That should mean a much higher trade in nearby soybeans.  Wheat is the lone bearish signal, with acreage larger than expected (730,000 acres) and stocks larger than expected (26 mb).  That should pressure wheat to some heavy losses Thursday, but the bullish corn numbers could limit the damage.  Notably, sorghum acreage is a million acres smaller than expected, so that might support the feedgrain new crop futures some.

Below include highlights from the USDA acreage report, but the stocks numbers were the real bull story of this report:

Corn Planted Acreage Up 5 Percent from 2010

Soybean Acreage Down 1 Percent

All Wheat Acreage Up 8 Percent

All Cotton Acreage Up 15 Percent

While the report numbers are important, the reaction of the market after the report is also important as it indicates the direction traders were leaning coming into the report.  Rarely has there been a winter when prices were so high coming into a report, with corn, wheat, and soybeans all at relatively high levels coming into the report.  Cotton and corn seemed to be competing the most for acreage, and should have garnered increased acreage from last year due to their attractive price offerings for new crop.

Were traders all lined up for a bullish report, and was all the buying already in the numbers? Or were there a significant amount of traders trapped in the short side of the market, with a need to buy after the report was out?  These are the critical questions which will be answered by the reaction to the numbers, and not just the numbers themselves.  The trade seemed to be leaning towards a bullish soybean report (less acres?), and a bearish cotton, corn, and wheat report (markets have been sluggish for these 3 commodities lately).  What effect on the technicals will the report have?  We had lower lows and lower highs in the soybean and wheat market prior to the report, and a corn market that appeared to be running out of steam.  

And of course, we also need to remember that the best laid plans of mice and men are subject to change, and the weather is one factor likely to change that.  Right now, the spring so far has brought adverse weather to the US, with cool/wet conditions in the Corn Belt and Northern Plains (delaying planting and ground preparation), and the HRW wheat area has been mostly warm/dry - damaging to the yield potential of the emerging crop from dormancy.  So far weather is bullish, but we are still early in the growing season.  

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The information contained, while not guaranteed as to accuracy or  completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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