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Grain complex wipeout

03/29/2013 @ 3:05pm

Grain markets were pummeled on Thursday following USDA’s release of the stocks and plantings reports. All major grains’ stock as of March 1 were estimated higher than average trade guesses; and in the case of corn, stocks were above even the high end of the range of estimates. So much for having extremely tight stocks of grain.

No surprise, the entire grain complex went into a meltdown on the news, led by corn which quickly locked limit down. Wheat had little choice but to follow, since it’s been tied to corn for several months. Soybeans joined the fun on the prospect of yet more acres if corn prices are going to fall out of bed and then the lingering cold spring likely leading to lower corn plantings – pushing more acres into soybeans.

For a summary of the stocks and plantings report, click here.

The widespread weakness in the grain complex will likely see more follow-through in the short-term. However, after the trade digests the numbers, the attention will turn again to weather and logistic problems in Brazil.

As for weather, we’ll watch closely for evidence of freeze damage in the southern Plains where temps were definitely cold enough to wreak havoc, primarily in Oklahoma and Texas. In addition, for all of the snow and rain we’ve had in the Plains over the last month, reports of dryness still plague much of that region. In fact, there is already plenty of talk about how much wheat will be abandoned, particularly in areas where wheat hasn’t even emerged yet. 

We’re also starting to hear reports of rust in the Delta region. Clearly, for wheat, while Thursday’s price action looks like a train wreck, there is still the entire growing season ahead of us, and crop conditions are not showing the improvement many had expected. 

Speaking of crop conditions, next week USDA will begin releasing national progress and crop condition reports on a weekly basis, so we’ll get a more thorough assessment of what’s going on out there.

Cold and snow still blanket much of the north and Midwest, leading many to assume a late start to planting and thus the prospect of more bean acres. The rest of the Northern Hemisphere also appears to be experiencing a cool spring and slow planting progress.

Export sales were respectable last week, giving a brief bright spot to the market before being walloped by stocks estimates. Wheat sales of 828 TMT were well above trade estimates and take us to 91% sold, compared to the average of 98%. It’s worth noting that Brazil bought 181 TMT; expect more to come. Corn sales of 314 TMT were in the middle of estimates and take us to 72% sold compared to 80% normally. Soybean sales were 674 TMT (mostly the 608 TMT new crop to China); to date we’re 97% sold compared to 90% normal.

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