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USDA report gives first glimpse

Agriculture.com Staff 05/11/2006 @ 2:11pm

Fundamentally, the market is focused on tomorrow morning's USDA reports. There will be the first survey-based winter wheat crop estimate. The average guess for the crop is 1.373 billion bushels, compared with last year's 1.499 billion bushel crop.

Also, there will be projections on 2006-2007 supply and demand. For these, the USDA will use the acres from the Prospective Plantings report and something around a trend yield. It will be the first chance since the Outlook Conference held this winter to see what the USDA is projecting for demand.

The details may be interesting tomorrow, but there are broad themes that should be more important. For example, the corn market has reason to be concerned over the next few years about the growth of corn use for ethanol.

This is not an immediate issue, with the burdensome carryout situation from the 2005 crop. But corn will need to attract more acres and continued yield improvement in the years ahead. Of course, the profitability of ethanol production in future years will also determine how quickly new plants gear up and if all the expansion and construction actually occurs.

Also, in the back of many people's minds is the question "when will China begin importing corn?" The possibility of Chinese corn imports makes the bulls in the market absolutely quiver with excitement. With no way to accurately gauge their stocks, answering the question is a guess. A large harvest this fall may also put off the discussion for a year.

Increasing production of biodiesel in future years does not have near the positive impact on soybeans. Carryout for the 2006-07 crop year will be even larger than this year. Even if there was a shift back to corn on a few acres, plenty of soybeans will still be grown. Domestic oil use will increase slightly in the coming year. Any truly price positive biodiesel demand is probably another year--or more--away.

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.

Fundamentally, the market is focused on tomorrow morning's USDA reports. There will be the first survey-based winter wheat crop estimate. The average guess for the crop is 1.373 billion bushels, compared with last year's 1.499 billion bushel crop.

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