Bull market in full stride, analyst says

The USDA has goosed the market even further, analyst says.

The bull market is now in full stride, running higher today even before the 11 a.m. USDA report.  

Once the report was out, the bull just took bigger strides as soybeans finished 35¢ higher and corn up 15¢. The USDA needed to cut yields dramatically, not small like the trade anticipated.  

While the trade expected 0.9 bu/acre cut in corn yields, USDA cut them 2.6 bu (almost 3x more) which translated into a 465-million-bushel (mb) cut in ending stocks. Corn ending stocks are now estimated at 1.702 billion bu., much less than the 3 billion or so projected just three months ago in August. Cuts of over 20% per month have been plentiful recently, and those are very bullish changes in only one month.  

Soybean markets are also bullish, with USDA cutting soybean yields 1.2 bu/acre – 6x more than the trade anticipated (0.2 bu). The result was a 100 mb cut in ending stocks to 190 mb; that is a 35% reduction in just one month! These are extremely bullish numbers, and frankly, the Pro Ag yield model for soybeans is still quite a bit smaller than USDA's recent number.  Remember, just three months ago USDA projected 600 mb carryout, so it has disappeared fast!

Soybean prices ran to new nearly five-year highs yesterday (since July16), along with the stock market at a new all time high as inflation fears are alive and well in markets.  Today, the USDA report added fuel to the fire, as the dramatic cuts in corn and soybean production add bullish fire to all grains.  After all, about two-thirds of all U.S. cropland is planted to corn and soybeans, making them the big dogs in ag markets; when they go up, everything goes up (a rising tide raises all ships).  

However, prices have already risen a lot, as evidenced by the crop insurance final harvest prices of $10.55 soybeans (vs. Feb. 9.17) and $3.99 corn (vs. Feb. 3.88).  Soybean prices jumped 15% into harvest, while corn rose a more modest 3%. These are bullish indications as we move forward, as we don't rally into harvest often.  As Pro Ag has commented lately, this rally is likely to last much, much longer – maybe years – as a long-term chart base bottom the past three years suggests prices to continue higher.  

We note that stock markets were sharply higher recently on the announcement just days after the election that coronavirus vaccines are over 90% effective, pushing to new historic, all time highs this week at 30,000 Dow.  

Crop progress yesterday showed corn harvest at 91% complete, 11% ahead of normal, and soybean harvest 92% complete, 2% ahead of normal.  Almost all harvest is ahead of normal, with cotton 61% done (4% ahead), sorghum 90% complete (10% ahead), and sunflowers 80% harvested (13% ahead).  Winter wheat is 93% planted (2% ahead), and 79% emerged (1% ahead), with winter wheat conditions improving 2% again at 45% G/E (but below 54% rating last year).  Soil moisture continued to be depleted, with topsoil 56% rated adequate/surplus (-6%) and subsoil 53% (-3%), so we continue to dry out soils after a reprieve last week. 

With stocks of corn modestly tight, and soybeans officially very tight, we still have a long ways to go to harvest another another crop.  That puts the spotlight on South America's crops this winter. Also, today, USDA cut Argentina soy production considerably, as they are just planting less due to socialistic government policies. Ironically, the rest of the world will plant more soybeans as prices are going up dramatically! Thus, it’s easy to understand why improving corn/soybean prices improve prices of all other grain commodities.


Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.  See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com. 

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