Post-WASDE Selling Opportunities on the Horizon?
The May Supply and Demand report once again confirmed big projected supplies and contained few, if any, surprises. We'll break down the numbers and add some commentary as to what it could mean in the weeks, months, and years ahead.
Starting with corn, farmers are expected to produce 13.6 billion bushels in 2015/16. This is 586 million bushels less than the previous year. Yield is estimated at 166.8 bushels per acre. This is a reduction of just over 4 bushels from a year ago. Keep in mind that last year was a phenomenal year. Projected carryout for the 2014/15 year came in at 1.851 billion, right in line with estimates of 1.848. Next year's carryout was in line as well at 1.746 billion vs. the average estimate of 1.736. World ending stocks crept higher, compared to the average prereport estimate of 189.5 mmt, with the May figure at 192.5 mmt. On the surface, we term the report slightly negative.
Soybeans had mixed results with projected carryout for the current year dropping to 350 million bushels from last month's 370 million. The prereport estimate was 365 million. However, for the year ahead, projected carryout is 500 million bushels, well above the prereport estimate of 438 million. Production is forecast at 3.85 billion bushels, which is a decrease of 119 million bushels from last year's record crop. Projected world carryout for the current marketing year was supportive at 85.54 mmt as compared with the prereport estimate of 89.7. Yet, projected carryout for the year ahead was 96.22 mmt, above the prereport estimate of 95 mmt.
Wheat projected carryout increased to 793 million from the prereport estimate of 727 million. All wheat production is estimated at 2.087 billion bushels as compared to the prereport estimate of 2.078. World projected carryout for 2014/15 exceeded the average estimate of 197.4 mmt and came in at 200.97 mmt. World projected carryout for the year ahead is 203.32 mmt vs. the average prereport estimate of 194.2.
As you can see from all the numbers above, there just wasn't much friendly news for grain prices. For the near-term, this suggests a continuation of sideways to lower price activity. End users are not in a position to have to chase prices. Unless weather conditions change, look for more sideways to lower activity in all three grain commodities. If weather does become a factor, rally potential exists, and will be limited unless there is real concern of a major supply drop. Yield expectations, by some accounts, are aggressive and high. While this may be appropriate based on production capability, it still takes cooperation from Mother Nature, both domestically and worldwide, to produce large crops year in and year out. The odds may not favor a third record crop in a row.
Grain producers should use rallies as opportunities to sell old crop and forward sell new crop. End users, in particular livestock producers, should begin to accumulate inventory. While there may not be a needto buy sooner than later, corn, soybean, and wheat offer excellent value compared to the cost of production. Weather will dominate price direction in the months ahead. Buying value in front of a weather market makes sense.
Check out all the big headlines & chats from the week in the grain markets
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