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USDA Report habits analyzed

04/12/2012 @ 2:37pm

Sometimes, it is hard to remember that, just because it is written on paper does not make it true.  Perhaps that is the best way to view the current set of supply/demand reports from the USDA.

The market was disappointed when the USDA did not lower the ending stocks for corn.  Sure, the USDA analysts had their reasons, like new crop corn harvested early and strong wheat feeding, and these reasons are shared by many market participants.

But putting it on paper does not necessarily make it so.  For example, the break in prices over the past week makes US corn more affordable for China to import.  Lower prices mean the nation’s ethanol plants may not reduce production as much as anticipated.  All of these could increase demand for corn beyond what the USDA says.  

So does the recent 20-25 cent break in prices send the correct message?  Unfortunately, it may be the June 29th stocks report before the answer is known.  Even with early corn harvest, the summer could be volatile in terms of cash prices and balancing supply and demand issues.   

Another habit the USDA has is making changes slowly.  Regarding soybeans, the USDA has taken a gentle approach to lowering South American crop sizes.  They are also slowly raising US demand to accommodate the lower Brazilian and Argentine supply.

For US farmers, the price signal to plant more soybeans may come too slowly also.  Changes in May or June to the supply/demand tables and subsequent price rallies will not be able to shift many acres to beans (especially if the quick planting pace continues for another 2-3 weeks).

If the bean situation starts looking too tight, very high prices can sharply reduce demand.  That is a difficult problem in the long run, since demand that is destroyed can take years to rebuild.  Sure the high prices are fun, but then prices will need to dip lower in the future to attract increased usage.     

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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. 

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