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USDA report seen as bearish

DES MOINES, Iowa (Agriculture.com)--USDA says the U.S. farmers produced more corn and soybeans in 2012, pushing the Friday CME Group farm markets lower. 

As a result, the trade sees the report as bearish soybeans and wheat,  but neutral for the corn market.

PRODUCTION

In its November Crop Production and Supply/Demand Reports, USDA estimates the U.S. 2012 corn production at 10.725 billion bushels vs. the average trade estimate of 10.670 billion bushels and the USDA's October estimate of 10.706 billion bushels.

 

USDA pegged the U.S. corn yield at 122.3 bushels per acre vs. the average trade estimate of 122.0 bushels an acre and the USDA's previous estimate of 122.0.

For soybeans, the USDA estimates the U.S. 2012 production at 2.971 billion bushels compared with the average trade estimate of 2.892 billion bushels and the USDA's previous estimate of 2.860 billion bushels. 

USDA estimates the U.S. soybean yield at 39.3 bushels per acre vs. the average estimate of 38.1 bushels per acre and USDA's October estimate of 37.8 bushels an acre.

ENDING STOCKS

The U.S. 2012-13 corn ending stocks are estimated at 647 million bushels vs. the USDA's previous estimate of 619 million bushels and the average trade estimate of 628 million bushels. 

For soybeans, the 2012-13 ending stocks are pegged at 140 million bushels vs. the average trade estimate of 131 million bushels and the USDA's October estimate of 130 million bushels. 

 

USDA estimates 2012-13 U.S. wheat ending stocks at 704 million bushels vs. the average trade estimate of 658 million bushels and the USDA's previous estimate of 654 million.

TRADE REACTION

One CME Group floor trader, requesting anonymity, says the only surprise is the soybean yield increasing 2.5 bushels from Oct to Nov.

"I assume this is one of the largest changes we have had, the market had been anticipating larger numbers. But, I figure 39 yield was the over and under," the floor trader says.

The USDA gets back on the export pace and still can accommodate a 140 million carryout, he says. "This keeps a lid on prices as long as Brazil weather remains fair. We are fairly bullish corn. Expect export pace to pick up with feed grains rallying to new highs this week in EU and wheat and corn now looking competitive. So, expect those markets to be well supported," the floor trader says.

A rallying dollar and week equity markets keeps fund participation light.

"Overall, the bean market will be driven by South American weather from here," the floor trader says.

Jason Ward, Northstar Commodity Investment Co. analyst, says that overall the report surprised to the bear side.

"Overall, good report by USDA, taking the right steps," Ward says.

The USDA's corn yield was increased by 0.3 bushel vs. their previous estimate of 122.0 bushels per acre. There was no change in usage, with carryout increased to 647 million bushels. "Those numbers are snoozers," Ward says.

For soybeans, the USDA released its bearish data. "Wow, a huge yield increase of 1.5 bushels per acre, equaling 113 million bushels more production," he says.

Soybean exports were cranked up 80 million bushels and crush up 20 million, to offset most of the production increase, giving you a 10 million bushel increase in carryout, Ward says.

"This report surprised us to the bear side on the soybeans, but not on carryout. Our estimate was up 15 million bushels," Ward says. 

For wheat, it's real simple, USDA lowered exports 50 million bushels. I totally agree. "Those exports have been lowered more than expected and needed to be lowered," Ward says.

Alan Brugler, President Brugler Marketing & Management LLC, says the world soybean stocks figure is bearish. "The bearishness comes mostly due to the big increase in US soybean production."

Sal Gilbertie, Teucrium Trading analyst, says that today's report confirms tight balance sheets for both corn and soybeans. 

"The rise in soybean yields was largely offset by increased demand predictions by the USDA, which means prices may not be rationing demand as much as needed," Gilbertie says.

Traders are clearly looking to South America for a good soybean crop this season, which should offset the severely tight balance sheet caused by the US drought. 

"But this season's South American crop will be vitally important to keep the soybean balance sheet from tightening further. All eyes are on South America now as well as on the prospects for good yields next year for corn in the US. But, those seeds are not even in the ground yet. Demand remains steady across all the grains," Gilbertie says.

Tim Hannagan, Alpari (U.S.) LLC senior grain analyst, says that entering the report the trade was carrying a negative bias from yesterday's bearish weekly export sales report showing a slow down in bean and corn exports. 

"It's not how the market opens but how it closes on report day that suggests the near term trend. There was unwinding of short corn/long bean spreads after the initial sell off on the opening, pulling corn back up. All grains look to resume a bearish demand bias after the report reaction is over," Hannagan says.

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