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.