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Report's bullish data ignored: Ray Grabanski

Today's USDA report was filled with information for both the bulls and the bears, but it was the bearish items that got noted in trade, with price plummeting limit down in corn, sharply lower in wheat, and moderately lower in soybeans.  

The bearish news included smaller demand for corn and wheat in the coming year, with corn stocks expected to be replenished somewhat to 900 mb in the 2011/12 marketing year, with export demand expected to slow 100 mb this year as the FSU countries (Russia and Ukraine) are expected to see a bounce back in production from last year's drought shortened crop.  Also, the demand for the nearly finished year (2010/11) is going to be cut for corn as well, leaving us with 730 mb ending stocks instead of only 675 forecast last month. The combined cuts in demand (apparently due to demand destruction from high prices) is causing the market to react negatively to this report.

Yet on the bullish side, USDA recognized that the yield of the 2011/12 crop is likely to be down from 'trend' by 3 bushels due to the late planting progress to date.  That robs about 260 mb from the production side of corn, and leaves us with a smaller ending stocks table than if corn had been planted on time.  A further assumption USDA is making is that the total corn acreage of 92.2 million acres will still get planted that was intended in the March report.  But the Northern Plains are struggling mightily with planting progress, and its likely a good share of their corn acreage (maybe even 25%) will get switched to soybeans or simply not get planted due to the lateness of the fieldwork so far.  

Yet the market choose to ignore the bullish news, and instead focus on the negative news for this report, pushing corn prices down limit in today's trade.  That follows up a devastating down week last week in commodities, led by the huge decline in silver, gold, and crude oil.  It appears that speculators are no longer willing to bet on higher prices, and are pulling out in droves from the current bull market. 

While the bullish side of the wheat production estimates included a disastrous crop reported in HRW wheat country, overall the wheat production estimate came in about as expected, but ending stocks projected by the trade came in slightly larger than trader expectations.  

World wheat supplies are reported almost unchanged for the 2011/12 marketing year, and apparently for now that is comfortable enough for the market to 'get by' another year.  US wheat stocks, while down, as still over 700 mb which is considered a comfortable level.  So for now, the market is treating these numbers as 'comfortable' numbers for now. 

Soybean production estimates continue to climb for the SAM crop, with Brazil production hiked another 1 mmt to 73 mmt, another large hike higher in what is already a large crop estimate.  That is going to limit the US Competitiveness in competing for soybean exports the rest of this year.  US stocks were made much more comfortable for 2010, hiking stocks to 170 mb from 140 mb last month.  Projected ending stocks for 2011 end at only 160 mb, indicating a still tight ending stocks situation for 2011.  Bulls might want to point to the continued smaller than 200 mb ES estimate for soybeans and less than 1 billion from corn as indicating stocks are still tight and subject to weather concerns from 2011.  There is no greater weather concern than the late planting to date that is impacting virtually all US crops in 2011.  That could yet become a concern.  But for now, the market focus is on all the bearish news in today's report, and that isn't being helped by the unanticipated rain falling in HRW wheat country today including TX, OK, and KS - the previously parched,dry area.  So down the markets go today, giving back most of the gains for the week.  

Since last week, it seems the market is very focused on the negative side of the market, and is ignoring any bullish news.  Perhaps that is telling us something about the new trend that the market might be taking, with a downtrend now possible into harvest?

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