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USDA dumps grain prices

USDA's stocks report gave a bearish surprise to grain prices, with stocks much higher than anticipated in all three grains, but none more bearishly than corn.  Stocks of corn were 370 mb larger than expected, which means corn feeding was much less than anticipated in the second quarter.  That translates into a sharply reduced feeding projection for the second quarter, but also likely in the rest of the marketing year as well.  That's why the report was so bearish corn, as rather than a carryout of 650 mb, we may see a carryout of up to 1 billion bushels.  We have no need to allocate the short crop any more than already has been accomplished, then, and so prices were free to tumble below the $7 mark.  

And tumble they did, with corn down 90c in just two trading days!  Wheat followed about 70c lower, as wheat is also priced as a feed grain these days.  Wheat also showed larger stocks than expected, with 67 mb larger stocks than anticipated by traders.  Soybean stocks were also 52 mb higher than anticipated, but soybean prospective acreage also was down 1.4 million acres (which amounts to a reduction in production of 56 mb), so the report was not nearly as bearish soybeans as the other grains.  

Nonetheless, soybeans tumbled about 60c in sympathy with the other grains.  Expected acreage of corn (97.3 million acres) and wheat (56.4 million acres) was about as expected, so there was little impact to these numbers.  But the damage was done on the stocks side of things, showing that we were not going to run out of grain in this marketing year.  And with the expanded production expected from next year, the drought of 2012 looked like we had solved the supply problem from that sharply reduced production year.

So it looks like the 2012 drought, which was devastating on corn production, has allocated the short 2012 crop with high enough prices to discourage the consumption of corn.  That is bad news for market bulls, as the trend has turned clearly downward for now.  The best that market bulls can hope for is a rally back to the $6.80 resistance levels in corn and wheat, and $14 resistance in soybeans.  Soybean is already there in overnight Tuesday trade, but wheat has a ways to go and corn a long ways to get back there.

Weather may support a rally in corn, as continued cold weather is delaying the warm up of soils to allow planting progress and drying of the soggy topsoils from winter snow.  But precip will cover the winter wheat belt in the next 7 days, and delays in planting will support corn prices and pressure soybeans.  

However, if we get the crop planted at an average pace or faster, it will help to provide pressure overall to grains.  Look for a recovery of sorts to be a seller of grains, as prices will likely see a rapid decline now that corn prices (and corn2 - wheat) dropped below support levels.  It could open up downside all the way to $5.50 corn and $6 wheat levels, as the support is thin between $5.50 and $6.80 corn prices.  A quick retreat back to $5.50 in corn could also open up the downside in soybeans to the $11 area, as once we break support at $13.60 there is also little support below that area in soybean charts as well.

Pro Ag has forewarned producers and traders about the potential for $11 soybeans yet this spring as we move towards summer, and also the potential for $4 corn by harvest time.  These two price levels look ever the more possible with the recent descent after the USDA report.  We hope producers took protection in the form of crop revenue insurance or puts/hedges, or both for the more aggressive sellers!

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