December 9, 2013
Note: Senior Editor Bryce Knorr is filling in for Tom Leffler today, who will be providing Afternoon Recap coverage throughout the holidays.
USDA's December Supply & Demand reports aren't noted for generating much excitement in the market, but bulls are hoping for help from Tuesday's data. Those ideas, plus positive news about exports lifted prices mostly higher Monday, though gains were mixed by the close.
Outside markets were modestly higher as well by the close in Chicago, with stocks hanging on to big gains from Friday. Supportive trade data out of China buoyed hopes the global economy is following in the footsteps of growth in the U.S. The dollar was a little weaker, reflecting a "risk on" mentality, that helped gold to end higher.
Crude oil prices in the U.S. were a little lower, but narrowed some of their spread to the international Brent benchmark. Oil is starting to flow from storage tanks at the Cushing, OK, hub where U.S. futures are delivered. Bulging supplies there widened that spread this fall. International prices are actually easing a bit, in part due to all the oil being discovered in North America.
Corn prices ended higher today, taking March futures to a test near its 40-day moving average. That line capped rallies since September, giving the market a clear target for tomorrow's USDA report.
The government typically waits for January to make big changes to its numbers, however. USDA made only token adjustments to carryout the last three years, though there have been years with some bigger surprises.
The average trade guess sees ending stock falling only 15 to 20 million bushels in Tuesday's report. Farm Futures thinks strong demand could cause a little bigger cut of 50 million bushels. Still, even that that would leave ending stocks at 1.837 billion bushels, a huge surplus by anyone's standards.
Today's news reinforced the stronger demand theme. Nearby ethanol futures were higher, keeping margins very attractive for plants. Export Inspections are also positive. The total was good at 40.2 million bushels. And China took 17.6 million bushels, despite the recent dustup over a non-approved GMO variety.
The pace of shipments is starting to pick up after a slow start caused by the late harvest and shippers priority for moving soybeans this fall. Year-to-date inspections are up 66%; USDA forecasts a 97% increase for the entire marketing year so gains will be needed as the second quarter of the marketing year gets underway.
Bottom line: USDA's December report should provide only limited excuses for a rally, at best, though short covering could still give the market a lift. Growers should be looking for basis pushes, carefully analyzing whether it pays to hold grain into 2014. Farmers have sold less of their 2013 crop than normal, leaving an avalanche of corn to hit the market after the first of the year. For more information, see the Weekly Corn Review. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily
Soybeans led the market higher on the back of strong export demand. January futures moved fractionally above the $13.46 spike high from last Monday, but eased off that level by the close, also backing away from the 61.8% retracement of the selloff from August highs to November lows.
Farm Futures expects USDA to cut 20 million bushels off its forecast of ending stocks Tuesday, taking carryout to 150 million bushels. Further reductions could be justified, but it's been six years since a December reduction topped 20 million bushels.
More evidence of strong exports was given bulls today – a double dose of demand news. USDA announced the sale of 8.45 million bushels of 2013 crop soybeans and 2.2 million from the 2014 crop to China, under its daily reporting system for large purchases. Then the agency reported weekly export inspections of 60.4 million bushels, including 41.4 million bushels for China. Total year-to-date inspections as the second quarter of the marketing year gets underway are up 8%, close to USDA's forecast for the 2013 crop. But today's new sales mean total commitments are already near the total forecast by the government for the entire year.
The question looming over the market is whether some of those deals will be cancelled, once what looks like a huge crop in South America hits the pipeline. Brazilian soybeans are cheaper, but ports there are nearly booked through March.
Conditions in South America remain favorable. Good rains moved across Argentina over the weekend, and Brazil should also benefit from rains this week.
Bottom line: Growers should use rallies over the next few weeks to wrap up sales. A close below $12.90 January futures means the trend is moving lower. For more information, see the Weekly Soybean Review. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily
Wheat prices ended mixed on Monday. Encouraging news about exports wasn't enough to sustain higher prices through the close, with more pressure coming from Minneapolis futures, which sunk to another new contract low today.
The average trade guess is looking for USDA to trim 25 million bushels off carryout in Tuesday's report, but that may be a little more than justified. Farm Futures thinks only a 10 million bushel reduction to 555 million is supported by current old crop fundamentals.
Stronger exports could change that outlook, and year-to-date inspections are running 43% higher, three times the level forecast for the marketing year by USDA. Today's report showed the number increasing to 19.8 million, beating trade guesses and the weekly rate forecast by USDA. Brazil shipped out 5.3 million bushels, continuing as an aggressive buyer to replace supplies lost due to lower production and exports from Argentina.
Questions remain about damage to winter wheat from hard cold and ice storms over the past week, but conditions appear to be moderating, at least on the Plains. Little precipitation is in the forecast, with weather models starting to hint at another blast of cold weather right before Christmas that could damage wheat on bare fields.
Bottom line: A few weather concerns around the world could provide support headed into winter, with good exports of soft red and hard red winter wheat supporting cash markets. But carry won't pay into winter, so sales of 2013 inventory should be down to gambling stocks. Use any rallies to extend 2014 coverage. For more details on the outlook, see the Weekly Wheat Review. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.
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