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Ending Stocks Numbers Surge Beyond Trade Estimates -- USDA

Both old- and new-crop ending stocks are seen higher than what the trade expected, but not all pits reacted immediately negative after pre-report shortcovering sent prices higher than Monday's close after USDA released its monthly World Agricultural Supply and Demand Estimates (WASDE) report.

In immediate post-report trading, July corn moved about a penny higher while July soybeans were about a dime lower and wheat moved around 4 cents lower based on larger crop and ending stocks sizes for this year's old-crop and next year's new-crop output and usage. Tuesday's WASDE report showed 1.851 billion bushels for the 2014-2015 ending stocks number; previous trade estimates averaged 1.848. For soybeans, USDA sees a 350-million-bushel ending stocks number for this marketing year versus the trade's expectation for 363 million bushels, but a 500-million-bushel outlook for 2015-2016 ending soybean stocks helped send prices lower.

"Today's WASDE confirms expectations of both enormous harvests and record or near record demand for all grains. Global corn usage, along with domestic corn usage in the United States, is expected to reach all-time high levels. The anticipated replenishment of the soybean balance sheet is nothing short of spectacular, but with demand projected to be the second highest level on record, the increase in supplies is certainly needed," says Sal Gilbertie, founder and president of Teucrium Trading LLC, sponsor of agricultural commodity funds traded on the New York Stock Exchange. "Currently adequate grain supplies are seemingly being balanced by historically high demand, especially for corn."

Wheat ending stocks are seen at 709 million bushels for this year compared to previous trade estimates averaging 689 million. For the 2015-2016 marketing year (new-crop), USDA sees corn ending stocks at 1.746 billion bushels, up slightly from previous trade estimates, and 793 million bushels for wheat, up from the previous trade estimate range of 727 million.

"We'll see where the market trades in here, and what the final reaction is, but of all the numbers, the 500-bushel number is the most negative for soybeans. I think there's some sketpcisim in these numbers, and justifiably so, because we haven't seen these things work out," says Kluis Commodities grain broker and market analyst Al Kluis immediately after the numbers were released. "Don't buy a big rally or sell a big break on this right away. If you keep pressure on soybeans and wheat both, it's going to be difficult for that corn market to hang in there."

Tuesday's report shows projected corn yields for this year just shy of 167 bushels/acre, down from last year, but "based on a weather-adjusted yield trend that assumes normal summer weather." Though the crop weather is largely favorable through late May, with ample moisture and warmer temperatures, it's too early to peg whether that average yield will increase, especially considering pockets where planting conditions have varied widely, from horrible to near-perfect.

"The 2015 yield outlook is not raised, despite the rapid pace of late-April and early-May planting, as more than 90% of the variability in the corn yield is determined by July precipitation and temperatures in the Midwest, which are unknowable at this time," according to Tuesday's report.

That sort of language -- and its implications moving into the primary growing season in the U.S. -- leaves a lot of breathing room, which could be manifested in later higher stocks numbers, says U.S. Commodities grain broker and analyst Don Roose.

"Certainly there's room for growth when you look at this report from the ending stocks for 2015-2016. They're using 166.8 for yield, which can grow. Acres can go up. But, I think it also tells you that the market has dialed in an awful lot of bearishness for corn and wheat."

But on the flipside, the way market players are positioned right now, any bad crop weather this year could cause a major price shift, Kluis says, adding sharp price moves can result "if you see a weather problem result with the funds this short.

"A large crop is getting built into the market but certainly isn't made yet," he says.

Moving forward, Tuesday's data will likely be traded for some time, Roose says, particularly in how it sets a tone for prices during the growing season, even once planting is completely wrapped up in the U.S.

"This is the one that sets the tone. This will make it harder for rallies to sustain themselves," he says. "We're going to have weather rallies, sure, but this will make it harder for them to last."

Adds Gilbertie: "Weather patterns will almost certainly dictate price action from this point forward. Given the strong demand projections in this report, any blip in the year to date near perfect weather conditions could potentially give end users of grains some cause for concern."

Kluis Commodities market analyst Cory Bratland said in the moments leading up to Tuesday's WASDE report release there's a growing issue for wheat prices in the Former Soviet Union (FSU) region; economic instability there has made hard commodities -- including wheat -- more valuable in their ability to create cash, and that means at whatever cost it takes to move that grain onto the export market even if it means sharply undercutting prices from other wheat-exporting nations.

"They're starving for currency. Until those economies stabilize, we're going to fight that week-in, week-out," Bratland says.

But Roose says it's not just in the FSU region; South America's facing tumult of its own right now, and even farmers in the U.S. will ultimately have cash needs that will dictate they feed the cash market. Meanwhile, the fund-positioning that's seen the creation of a record number of short positions in the grain futures trade, there are still more long positions held by farmers, and ultimately, the tug-of-war between the 2 will likely unfold as farmers reach the point at which they have cash needs to cover.

"People are looking at currencies, with hard commodities being part of the currencies. Right now, it encourages more selling and more into the cash market. It keeps a lid on the market. What it does is forces a competitiveness around the world," Roose says. "I think the funds' short positions will continue. But, the producer out here is probably long 500,000 in the cash market. So, you've got 117,000 shorts by the funds and 500,000 longs by the producer. What's going to give? Eventually time wears out the prices. When you come out of the field, the wakeup call is on to generate cash."

 

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