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USDA/WASDE data friendly

The U.S. and world corn and soybean stocks tighten, and the South American production falls, according to the USDA/WASDE Reports Tuesday.

Corn is seen opening 2-5 cents higher, soybeans are called 10-15 cents higher and wheat 5-7 cents higher, according to CME Group floor traders. The trade thinks the world carryover numbers are bullish.

U.S. Grain Stocks

In its USDA Reports, the government agency estimated the U.S. 2011-12 corn carryout at 801 million bushels, compared to the average trade expectation of 717 million and the March estimate of 801 million bushels.

For soybeans, the U.S. 2011-12 stocks estimate is 250 million  bushels vs. the average trade estimate of 246 million and the government's March estimate of 275 million.

The USDA pegs the U.S. 2011-12 wheat carryout at 793 million bushels vs. the average trade estimate of 796 million bushels and its March estimate of 825 million bushels.

World Production

In its Tuesday report, the USDA put the 2011-12 Argentina corn crop tag 21.5 million metric tons vs. the average trade estimate of 21.5 million metric tons and the government's previous estimate of 22.0 mmt. USDA sees Brazil's 2011-12 corn crop at 62.0 mmt vs. the average trade estimate of 61.8 mmt and the March estimate of 62.0 mmt.

For soybeans, the USDA estimates the 2011-12 Brazil production at 66.0 mmt vs. the average trade expectation of 67.0 mmt and the government's previous estimate of 68.5 mmt.

Argentina's soybean production estimate is pegged at 45.0 mmt vs. the  average trade estimate of 45.3 mmt and the USDA's March estimate of 46.5 mmt.

World Carryover

Perhaps the section of the Reports that the trade finds most bullish is  the World Carryover estimates.

For corn, the USDA sees carryover at 122.7 mmt vs. its March estimate at 124.5 mmt. For soybeans, the world carryover is at 55.5 mmt vs. March's 57.3 mmt. USDA pegged world wheat carryover levels at 206.3 mmt vs. the March 209.6 mmt.

Trade Reaction

Jason Ward, Northstar Commodity analyst, says the report could ultimately be bearish for the corn market, with the carryout left unchanged. 

"Very surprising to see following last month’s supply/demand. It’s almost as if they (USDA) ignored the Grain Stocks report from the end of March. Kind of a joke really that WASDE doesn’t take into account what USDA says. Our bias was this corn carryout would approach pipeline around 700 million, but maybe they are setting a new pipeline at 800 million bushels. Definitely impossible to explain to a customer how USDA says we have less corn on supply, but WASDE shows no change," Ward says. 

Soybeans, old crop supply got tighter as expected and the world carryouts tightened as well, due to lower crop estimates in South America, Ward says.

"Wheat was the most friendly, with another tightening of the old crop and also a 3.2 MMT reduction in the world carryout. So, look for the wheat to gain on corn, which will be supportive to corn. But, frankly, wheat is either too cheap compared to corn or corn is too expensive.'

Sal Gilbertie, Teucrium Trading LLC analyst, says the USDA's corn carryout number will have some scratching their heads. "The unchanged level of old crop corn carryout indicates expectation of both higher wheat usage for feed in the near term and the expectation that early corn planting will blur the line between old crop and new crop supplies in late August and September," Gilbertie says. 

This should temper any near term price increases for corn, which is potentially good news for consumers, Gilbertie says.

However, the anticipated early corn harvest indicates early season corn planting at the expense of soybean acreage. "When coupled with the projected reduction in South American soybean production, it looks like the story will be in the soybean sector this season," Gilbertie says. Global coarse grain usage is again projected to be higher than global production, which seems to confirm the trend of increasingly inelastic demand for grains becoming even more dependent upon reliable supplies, he says. "Global weather patterns will be in the spotlight as a result," Gilbertie says.

Tim Hannagan, senior analyst, agrees that this morning's U.S. corn carryover number left unchanged could lead to a higher open in sympathy with a drop in bean carryover.

"But, we're poised to open higher, but possibly fade the opening as there was no big surprise and we're high on the year for prices. Last year we broke on corn and beans after we priced in the report on report day," Hannagan says. 

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