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Did corn bottom on USDA reports?
The government report last week was a bit of a surprise for corn, with lowered production numbers 61 mb vs. expectations of another rise in production. USDA got there by raising harvested acres, and lowering yields in the report for a net loss of 61 mb of production in corn. USDA also shed carryout in the report instead of increasing it, as quarterly stocks implied larger corn feeding and disappearance than expected. So USDA hiked feed use 100 mb in this report, and we ended up with a 1.6 billion-bushel carryout instead of some expectations of 2.0 billion.
Corn prices responded by first running 5c lower before the report in anticipation of a bearish report, and then running nearly 20c higher on the actual numbers, for a upside reversal on daily charts. That could signal the bottom in the corn market, finally, after running lower for the past 16 months. So corn charts are suggesting a possible bottom, while wheat prices ran to new lows Friday on bearish numbers, and soybeans also losing value after trading 20c higher into the report and losing most of those gains by the end of the day.
So while we are getting signals that corn prices may finally have bottomed, we are not getting those same signals in soybeans and wheat - yet! However, corn is the big dog in the grains, and what corn sees perhaps just takes a little more time for other crops to see.
While the corn report held some surprises, the traders had well anticipated the soybean report as carryout stocks were kept right at about where the trade expected them in the U.S., with USDA hiking production 0.3 bu/acre to 43.3 bu/acre. The trade also well anticipated the production hike of 31 mb, and the corresponding hike in demand of essentially the same amount, with a hike in exports of 20 mb and 10 mb hike in crush. That left soybean carryout unchanged.
When looking at world numbers of soybeans, though, there was more carryout projected as South American production was once again hiked in this report. That left the SAM producer with more stocks to sell, and world carryout was a bit more than expected.
Wheat was the one crop that held the most negative numbers, with more U.S. and world carryout than expected. This pushed wheat sharply lower on Friday, and we had new lows for most classes of wheat by the end of the day. It's hard to imagine wheat getting much more negative without pressuring corn as well, as wheat once again may enter feedgrain channels in the world in certain spots where corn is hard to get.
Pro Ag had been getting less negative both corn and wheat heading into the report, as we had bought back between 75% and 100% of corn hedges and 100% of wheat hedges prior to the report. Final Pro Ag downside price targets for this year's crops had been $4.25 corn, $11-$11.10 soybeans, and $6 CBOT wheat.
We note that new-crop soybeans already are knocking on the $11 door for soybeans, our target for yearly lows. But this is a weekly target, and that means nearby futures should get down to here. That might mean simply months expiring and leaving the Nov 14 to be at $11. Or it could mean another $1.50 drop in futures markets on nearby futures. Since it's a weekly chart, we lean toward the nearby futures moving down to the $11 area, and that could mean more downside risk for nearby soybeans. It's South American weather right now that dominates the trade, and so far, SAM weather has been mostly good, except for southern Argentina where some heat and dryness has occurred. But Brazil weather has been ideal, and that could result in production hikes in that region of the world.
But for now, at least we have some signs that commodity prices could be bottoming with the positive reaction in the corn market, and the daily and weekly upside reversals showing up on that chart.
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