Final January USDA report

Farm Forum

01/13/15 — Last week I talked about some potential bullish information in the Jan. 12 USDA report, which yesterday gave initial winter wheat planted acreage for 2015 as well as final 2014 corn and soybean yields for the U.S. Some expected significant acreage revisions as well and some fireworks from that information. These market bulls are excited about the recent rally, and expected it to continue through the winter.

Well, the report is out, and the most bullish information was a reduction in corn yield of 2.4 bu/acre to 171 bu/acre, which reduced ending stocks 121 mb and supported corn the day of the report Monday. There also were minor revisions in acreage, with corn planted acreage revised lower 300,000 acres, but harvested acreage was left unchanged which meant a higher percentage of harvested acreage. USDA chose to reduce feed use 100 mb in this report, and therefore the still large ending stocks figure of 1.877 billion bu.

Soybeans planted acreage was also reduced 500,000 acres, with harvested acreage reduced 300,000 acres for some bullish news as well. But that was offset by a higher yield estimate at 47.8 bu/acre, up 0.3 bu/acre from last month and a new record high yield. That left production numbers up 11 mb from Dec. to 3.969 billion bu, and therefore stocks were left unchanged at the still cumbersome 410 mb. Export were hiked another 10 mb, reflecting the still strong export lineup for soybeans. But the market reacted with sharply lower soybean prices as 410 mb carryout is still historically large. The other negative was a 1.5 mmt rise in the Brazilian soybean production forecast in January – which could be reversed in February if the current warm/dry pattern for a swath across central Brazil continues this month. But that is a question for another month!

The report numbers are now known, and the market reaction might be more important than the actual report. So far, the market seems to be slowly realizing that we will not run out of stocks of wheat, corn, or soybeans soon given the record large yield of corn and soybeans we experienced last year. Instead, 410 mb carryout in soybeans is much more plentiful than we are used to. So the market is reacting negatively to the fact that we can play with exports the rest of the year, but we are likely to have a lot of cushion to play with given the 410 mb projected carryout.

In corn, the final bullish surprise was given to us in the report, and prices failed to go any higher than they had already given the uncertainty before the report. With some of the bullish information now released for the public to see (lower yields, lower planted acreage) now there isn’t much else to provide bullish fodder to the market. Bulls like to be fed every day, and this bull might be out of food for the near term.

Once the market starts to focus on next year’s numbers (planted acreage, production, demand, etc.) perhaps we can find new bullish information to trade. But for now, it appears that much of the bullish information is priced into the market for now. We note that trends seem to be turning lower for corn and wheat prior to the report, a good place to make catch up sales of these grains at levels above our targeted $4.05 or higher July corn, and a few weeks ago on the wheat price spike higher. We might be looking at lower grain prices for the next few months as the trend turns to lower and extends back off in that direction for a while.