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USDA reports don’t live up to volatile expectations, analyst says

Within minutes of the report, the markets acted like there hadn't been a report, analyst says.

The January supply and demand report coupled with the quarterly stocks report has a historical track record of triggering high price volatility the day of the report.  

Each month, the USDA releases a report detailing world supply and demand. Yield is forecast each month of the growing season, with the last estimate for the year on the January report.

What is interesting is that there is not a yield estimate on the December report, so the January report has two months of pent-up guesses as to how to the final yield number might change.

Additionally, the quarterly stocks report can be a game-changer, as surveys of on-hand supplies are conducted, and the released figures can vary significantly from market expectations or previous USDA reports.

When this year’s reports were released on Wednesday, there was a brief flutter of price activity. Within minutes of monitoring price quote changes, you couldn’t tell there had been a report at all. Most of the report figures were near the average analysts’ estimates. Typically, news agencies will connect with various market analysts for their best estimations of the report numbers. They then create a range of these estimates and an average. If report figures from the USDA are near the average of the estimates and within the range, trade activity is usually rather quiet. This was the case for the January report.

World numbers were subdued for corn and well within expectations.

For soybeans, drawdowns for production in Brazil and Argentina were noted, reflecting dry conditions that (so far) have affected parts of these crops. Soybean futures ended the report day with double-digit gains, likely anticipating further drawdowns to production in both countries, as recent weather forecasts continue to suggest only minimal rain in dry regions. A La Niña weather pattern suggests continuing drier-than-normal conditions could be in store for areas already suffering from a moisture deficiency.

The year ahead promises volatility, as tight supplies and must-have crops worldwide will underpin prices. Yet, futures are trading at an elevated level. If crop production does indeed rebound, prices could be on the slide. High prices usually cure high prices. This is accomplished through diminished demand and increased production.

Farmers should strive to be balanced in their marketing efforts. When making cash sales, consider covering these contracts with call options. Puts can be bought to establish a price floor for unpriced grain that can appreciate if prices do rally.

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If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing:  800-334-9779.


Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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