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How will the markets react Friday?

Jeff Caldwell 11/08/2012 @ 3:50pm Agricultural content creator and marketer.

Friday's USDA Crop Production and World Agricultural Supply and Demand Estimates reports are expected to show U.S. farmers have raised a bigger soybean crop in 2012 than traders and crop-watchers expected earlier in the growing season. For the soybean futures market, that's bearish.

But, there's just as much of a chance that delays in South American soybean production could delay harvest there by weeks, stretching the amount of time an already tight supply of soybeans from elsewhere -- namely the U.S. -- has to last, an especially daunting task with big-time buyers like China remaining in the market. And that, on the other hand, is bullish.

Those are the 2 biggest variables to watch in Friday's reports, which will be released at 7:30 AM CST and could lay the groundwork for any specific price trends moving forward.

Soybean struggles

So, which side -- bears or bulls -- will win out?

"It will be interesting to see how that demand plays out next few months. Once we get a better handle on South American production prospects, we'll shift demand down there. So far, planting's slower than normal. It's going to be very interesting to see if they can get those beans out on time and shipped out quite as early with the rain they've had in southern Brazil and much drier than normal conditions in northern Brazil," says Price Futures Group trader and market analyst Jack Scoville. "We could be facing production losses and certainly delays to harvest, and that could affect soybean availability in the early stages of when that South American crop comes."

But, then there's the higher-than-expected soybean supply that's come out of U.S. fields this fall. Scoville says while this is a bearish factor on its own, there's simply not much wiggle room in the supply chain, definitely not enough to have too long a downward influence on prices.

"Yields are better. I think an increase [in crop size] such as the trade seems to be looking for is fully justified, and would anticipate that would filter down to demand as well," he says. "Ending stocks probably won't change to any significant degree. USDA will find export demand is very strong. We will be able to increase domestic demand either way. We will still see a tight supply-to-use ratio as we move forward."

Corn adjustments

So, the bulls may have an edge in soybeans. What about corn? The key number to watch Friday, says INTL FCStone analyst and trader Kyle Schrad, will be corn export figures and whether USDA adjusts those one way or another. If it's trimmed back as much as traders anticipate now -- yielding a slight increase in carryout -- it will be bearish. But that may open up opportunities for farmer-selling based on the likely jump in corn basis levels lower prices could yield.

Either way, Schrad doesn't expect either price reaction or farmers' generally tight-fisted nature with existing grain stocks on hand to change much after USDA officials speak Friday.

"We tend to think if USDA comes in with a number close to ours, it will be bearish on the board, but we'll see a substantial basis offset. Farmers are tight on grain, and they're not looking to sell much. And if the board falls off, that will be more true," Schrad says. "Again, we're going to be keeping a close eye domestically on what export sales are. Probably won't see much change in ending carryout because export numbers will increase toward the end of year. There will not be a lot of price response one way or another."

What about wheat?

Export demand hasn't been too major a player in the wheat sector lately, but it could be on its way higher between now and the end of the calendar year, Scoville says. Australia's crop will likely see a major cutback from the drought that's hit that nation this year, and Argentina's wheat farmers are suffering from the opposite problem.

In view of these factors, what's likely Friday morning? Scoville says USDA could take steps to trim export demand to offset the production problems abroad, but it's more likely any trim there will be able to keep up with the bigger-picture production issues.

"Whether USDA moves to cut export demand, which at the current pace they certainly could do, I think they'll choose the optimistic track and see wheat estimates to be slightly friendly to the trade," he says.

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