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Grain Prices Dip Despite Tighter Corn, Soybean Stocks Data

There's less corn and fewer soybeans on hand in the U.S. right now than the trade expected heading into Wednesday's monthly World Agricultural Supply and Demand Estimates and Crop Production report.

Wednesday's WASDE report shows a 1.998-billion-bushel ending stocks number for corn and 410 million for soybeans. Both numbers fell toward the low end of the range of trade estimates heading into Wednesday's reports.

"Soybean exports from the U.S. were increased due primarily to increased
Chinese demand, which lowered U.S. soybean ending stocks by 9%," says Sal Gilbertie, founder and President of Teucrium Trading LLC, sponsor of agricultural commodity funds traded on the New York Stock Exchange.
"Even with the drop in ending stocks, the projected global soybean
balance sheet remains comfortable for now, but the buying pace of the
Chinese in the beginning of 2015 will almost certainly determine the
future status of the entire soy complex moving forward."

"Definitely going to be friendly here, longer term," says Kluis Commodities market analyst Cory Bratland of USDA's data, adding that much of the decline in soybean stocks is accounted for in an increase in exports over the last month from 1.72 million to 1.76 million bushels. Those numbers have the soybean export pace racing ahead of normal, Kluis Commodities broker and analyst Al Kluis adds.

"80% of exports for the year, I believe, have been already committed. Exports for beans are very positive. With ending stocks going from 450 to 435 to 410 million, I'm not really understanding the pricing action right now," Kluis says of lower prices immediately after the reports were released.

Though there's less grain on hand than earlier thought in the U.S., lower prices can at least partially be explained by crude oil prices; that market has lost $3 per barrel in early trading Wednesday, and prices around $60 a barrel make things tough for the corn bulls, Kluis adds.

"The crude oil market is getting tanked, and that does make it hard for corn to rally," Kluis says.

So, why are the grain markets dipping despite largely bullish supply numbers? Export sales -- a major bellwether of overall ending stocks -- have been surging for about two months now, at least for soybeans. So, it's not necessarily a question of fundamental supply and demand, but rather one of how much the market has been taking that supply and demand into account, says market analyst and broker Jason Roose with U.S. Commodities.

"How much of that is already dialed in? We've been riding a substantial rally due to exports," he says. We need to see strong exports to continue a rally."

Another factor that could be counteracting the bullish export pace is the weather in South America, where farmers are zeroing in on harvest for the safrinha corn and soybean crops. Weather has been fairly good there lately, with ample rainfall. That could be keeping the brisk export pace for U.S. soybeans from being too much of a buoy for the domestic bean market, Roose says.

"Any crop problems diminish as you go through the crop year and, as of now, the expectations are big, but we do already have a weather premium built in, and we haven't really taken that premium out," Roose says of South America's crop potential. "It's a tug-of-war between U.S. exports and the weather in South America right now."

Wednesday's data confirms that the world's appetite for grain is generally still surging. Despite bearish short-term signals from factors like crop weather in South America, Gilbertie says the ultimate longer term signal from Wednesday's report is that the world is hungry for grain, and farmers will have to continue to up the ante on the production side to keep up.

"The most significant part of this report is the continued projected record levels of global consumption of all three major U.S. grains, which puts added pressure on farmers to achieve huge yields again in the next crop year. Continuing record global demand will necessitate record or near-record global supplies of all grain categories in the future," he says. "Traders will likely use price dips to take year-end profits, and investment professionals and asset allocators will likely continue raising their investments into the grain markets in their asset allocation models for the coming year."

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