USDA report realigns the stars
01/16/17 — It’s been a fairly uneventful time in the grain markets recently, with soybeans drifting a bit lower recently on the excellent weather in Brazil thus far this growing season. That has added light pressure — light because the weather in Argentina has not been very favorable the past six weeks or so, with mostly warm and dry weather putting some crop stress in Argentina. But the good weather in Brazil seemed to more than offset the bad weather in Argentina, so net the market was dealing with a bit larger total South American production estimates. USDA reiterated that stand when they increased Brazil’s soybean production estimate 2 mmt, and cut the Argentine estimate 1 mmt in last Friday’s January USDA report. So net it indicated more world production.
However, on the bullish side, they also cut the yield for 2017 in the U.S. crop (and that supported soybean prices) to 49.1 bu/acre, down from 49.5 bu in November. The cut in U.S. production (which was a final number) seemed to be deemed more important than the hike in Brazil numbers, as even with a cut in U.S. exports soybean prices rose on Friday at the CBOT after the report. In fact, soybean charts formed a daily upside reversal on charts, and there was some follow through strength when trade resumed Tuesday morning after the Martin Luther King Holiday Monday. It would be nice if that indicates a trend change, but unfortunately the South American weather is still affecting the trade, and if that improves further the short term uptrend from the USDA report numbers could end.
Ironically, the U.S. ending stocks number went up to 470 mb, up 25 mb from December as exports were cut 65 mb due to the slow pace of exports to date. That more than offset the 33 mb cut in production from lower yields, and thus the higher ending stocks number (that is approaching 500 mb). But the market didn’t seem to mind, as prices went up anyway Friday and Tuesday morning.
South American weather forecasts are not much different than Friday, with perhaps a bit less precip for both Argentina and Brazil for the next 14 days. Now both countries are forecast to have normal to maybe slightly below normal precip for the entire 14 day forecast. Temps are still forecast to be above average in Argentina, and normal for Brazil. Overall, this is not a threatening forecast.
The USDA January report Friday was mixed for the grains, with mostly neutral numbers for corn (production up slightly, with yields up to 176.6 bu but on 400,000 less acres, for a net production increase of 26 mb). Corn ending stocks were up 40 mb to 2.477 billion with both a slight rise in production and a slight cut in use. But corn didn’t move much in price after the report, with some small gains following the soybeans.
The report was considered a bit more bearish for wheat (more acres planted for winter wheat than expected, and more stocks). Wheat stocks were hiked to 989 mb (up 29 mb from Dec), with imports up 5 mb and feed use down 20 mb. The most negative number seemed to be the acreage report, as traders anticipated a bigger cut in acres than actually occurred. Winter wheat planted was down about 1 percent from last year, smaller than the trade expected, so the trade sold off the wheat market relatively aggressively after the report.
We formed an upside reversal in soybean trade Friday, so there was a bit of follow through strength in overnight trade. Wheat, on the other hand, took the news of “less cut in acreage than expected” hard, dropping and closing sharply lower Friday, with follow through weakness in overnight trade.
Wheat could come down and test recent lows, but if they hold there it would be a double bottom formation that might hold this time. We note that winter wheat areas may actually be seeing an expansion in the area enveloped in drought, and that could support wheat as we get closer to spring. Even with more acres than traders expected, if the winter wheat experiences more drought weather this spring, it could still mean a much smaller crop than the previous few years.
