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Traders react to USDA report

The USDA released neutral-to-friendly data Thursday. In its February World Crop Production and Supply/Demand Reports, the USDA lowered Argentina's corn production estimate further than the trade's estimate, setting today's markets up for higher prices.

Early Calls for the commodities are seen as 2-4 cents higher for corn, soybeans and wheat. 

Due to a severe drought, the general consensus has been that the government would cut South America's corn and soybean production estimates.

South American Production

For Argentina's 2011-12 corn production the USDA estimates a crop of 22.0 million metric tons vs. its January estimate of 26.0 mmt and the trade's expectation of 22.5 mmt.

For Argentina's soybean crop, the USDA sees 2011-12 production at 48.5 mmt vs. its January estimate of 50.5 mmt and the trade's expectation of 48.5 mmt.

For Brazil's soybean production, USDA pegged that country's 2011-12 cropsize at 71.7 mmt compared to its January estimate of 74.0 mmt and the trade's expectation of 71.7 mmt.

U.S. Carryouts

In its report, the USDA estimated the U.S. 2011-12 corn carryout, at the end of the marketing year Aug. 31 at 801 million bushels) vs. its January estimate of 846 million bushels and the government's January estimate of 846 million bushels.

USDA estimates the U.S. 2011-12 soybean carryout at 275 million bushels vs. its January estimate of 275 million bushels and the trade's expectation of 269 million bushels.

For wheat, the USDA's U.S. carryout estimate is 845 million bushels vs. its January estimate of 870 million bushels and the trade's expectation of 868 million bushels.

Trade Reaction

Jason Ward, Northstar Commodity Investment Co. analyst, says the USDA Report is friendly for corn. "The USDA cut the carryout by 45 million with an increase in the export target by 50 million bushels," Ward says.

For soybeans, the data is neuter, Ward says. "But, the government is estimating a nice export sale again this morning, in its weekly Export Sales Report."

"I see the report neutral-to unfriendly for wheat. It's friendly with another draw in carryout to 845 million. But, the global numbers were huge at 213 MMT, up from 209 estimate. This would be overall I think a little negative," Ward says.

Jack Scoville, PRICE Futures Group vice president, says nothing in the report is outlandish. "I see nothing terribly surprising in the numbers today.  Probably neutral-to-negative except for wheat which is neutral to positive.  Export sales a little below expectations.  I think we can be a bit lower to start, say 2 to 4 cents in corn and wheat and 5 to 10 maybe in beans," Scoville says.

Sal Gilbertie, President and CIO of Teucrium Trading LLC, says the report came out as expected. "With the report about as expected for corn, the stocks-to-use ratio in the US has now dropped to the lowest level since the 1994/95 crop year. This should be supportive in the near term for corn prices, since current inventories are projected to be unusually low," Gilbertie says. 

Corn prices will likely remain supported at least for the next few months until we begin planting this year’s crop in the Northern Hemisphere and can assess its progress, he says. 

"Global corn inventories as expressed in the stocks-to-use ratio appear to be unusually low. "So, we will rely heavily on forecast production in the coming crop year to provide potential price relief."

Wheat had no surprises with adequate world supplies confirmed, and soybeans look better supplied than anticipated by the trade, Gilbertie says.

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