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USDA a 'Wet Blanket' on Grain Prices

07/02/2014 @ 2:34pm

The Monday morning stocks and acreage report was a big wet blanket on prices.  Rarely does the market see virtually every number come in larger than expected.  The reaction was swift on Monday and the overhang of bearishness continued Tuesday and Wednesday.  (This comment was written Wednesday, 7/2/14).    

The soybean acreage number simply took the market’s breath away.  At 84.8 million acres, it was 2 million over the pre-report estimate and 8 million acres larger than 2013.  The change in the new crop supply/demand situation could be dramatic, with the carryout growing to over 450 million bushels.  While traders know it will be awhile before the soybean plant makes pods and beans, it may be the case that soybean prices slowly drift lower unless there is a weather issue.    

The bean stocks number was also larger than expected, but doesn’t necessarily solve the old crop supply/demand issues.  It does continue to point to an underestimation of last year’s crop.  The answer to the crop size question will not come until the September 30th stocks report.  The USDA often has to make adjustments to the previous year’s bean crop at that time.  

Alright, the corn acreage number wasn’t really larger than the pre-report estimate.  But with the occasional private survey showing very low acres or an analyst writing a daily column and wondering if corn acres would be sharply lower, the market really breathed a sigh of relief with the 91.6 million acre number.  The stocks number added bearish flavor.  Feed/residual use for old crop will need to decline and carryout will go up.  

A diminishing number of things can provide a bullish spark to the market now.  There’s weather, obviously, and then maybe a smaller than expected crop size in the August report.  From a long term perspective, the market will watch for any increases in demand that come from lower prices.  

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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