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Weather to trump USDA reports -- traders

Though Thursday's USDA crop production, grain stocks and world supply/demand reports will have the "market bulls running to the door like salmon swimming up a spring stream, free food for the bears" as one trader says, Mother Nature will likely trump the agency's numbers well before it's time to plant corn and soybeans this spring.

That's the consensus of traders and analysts Thursday after USDA reported corn and soybean yield numbers that were on the high end of the trade's range of expectations. USDA reported the 2011 average corn yield was 147.2 bushels/acre and 41.5 bushels/acre for soybeans, according to Thursday's USDA annual Crop Production report. That all translates to a corn crop of 12.4 billion bushels, up slightly from the November estimate, while the U.S. will raise 3.06 billion bushels of soybeans, up slightly from the November estimate.

Thursday's data "takes off some of the extreme tightness" in the world grain markets, though traders agree the initially bearish reports -- so bearish they sent corn to limit-down in early trading Thursday -- should be overtaken by weather concerns fairly soon, first in South America, then at home in the Corn Belt.

"In general, USDA did not really address the South American production situation and potential losses that could occur. Already, losses since the first of the year have been very significant," says trader and analyst Terry Roggensack of the Hightower Report. "A lot of analysts and traders are looking at a 12- to 16-million-ton potential loss of corn production out of South America. How do we replace that? When [USDA] addresses this situation next month, it could end up lowering world production quite a bit and raising U.S. exports quite a bit. And, that could lead to quite a tight situation."

But, it has rained in parts of the corn- and soybean-growing areas of South America in the last few days, mostly in Argentina. And even though that rain may be too little too late to salvage much more yield out of the already-torched corn crop in that region, Jerry Gidel of North American Risk Management Services, Inc., says the some in the market are taking that rain on its face value whether or not it will mean anything to the crop. And, it's still too early to measure just how much the South American soybean crop has been harmed by drought.

"Some are trying to utilize this rain in Argentina that La Nina's already going to start fading. That's hard to pinpoint for sure," Gidel says. "We still will have issues with soybean damage in South America."

Now, look north from South America. Though it's been a much quieter trend than the drought in Brazil and Argentina, it's been awfully dry in the Corn Belt, and that looks to start taking a larger chunk of attention in the trade between now and spring planting time, says Jack Scoville of the Commodity Futures Group.

"We've had extremely anomalous weather patterns here. We actually need some winter weather to start that freeze-thaw cycle," he says. "When you look around the world, with the change from one stable climate pattern to another that's taken place, we've created some production issues, both good and bad, around the world. Expect that to continue in a supportive way.

"I tend to think this adds another note of uncertainty," he adds.

The combination of the 2 continents' volatile weather will add up to "extremely volatile markets" for as much as the next 2 years, Roggensack says. That's largely because even though Thursday's numbers alleviate some of the tightness in grain stocks and usage worldwide, that picture's still going to be a tight one for a while to come.

"We already need the extra acreas and we're going to have to see decent yields," he says. "We're not in a situation where world has enough grain."



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