Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
September 23, 2016

USDA’s quarterly grain stocks reports produced some big market moves in recent years. Most of the time these numbers are the grain trade’s equivalent of deep inside baseball stuff, statistics that aren’t as easy to fathom as the numbers put out in the government’s monthly supply and demand updates. But data that comes in contrary to expectations can produce significant moves on the board.

The Sept. 30 release shows inventories on Sept. 1. That’s the starting date for the new crop year in corn and soybeans, so these supplies will show how much was left over at the end of the 2015 marketing year. These two reports and the numbers for wheat indicate how much was used during the June-August quarter, but that’s just the start of interpreting just what the numbers mean.

Usage of soybeans is fairly well known due to other releases, including monthly crush reports from the government and National Oilseed Processors Association. Export data is reported weekly for shipments and inspections, but these don’t match the official data collected in Census reports. But analysts make adjustments based on prior trends that typically come close.

The quarterly soybean summary can still produce surprises. Some of this is due to statistical error found in any collection of data, not to mention shrink. But when Sept. 1 stocks change significantly from earlier estimates it can also indicate the crop was bigger, or smaller, than the last estimate made by USDA in January. Previous quarterly reports provided mixed results on this count, so this could always be a wild card. Otherwise, it appears that soybean crush may be lower than USDA estimated, raising ending stocks for the 2015 crop by 4 million bushels to 199 million.

For corn, ethanol and exports are pretty well known, thanks to monthly Census data and weekly updates on ethanol production and exports shipments and inspections. But nearly 40% of the 2015 crop likely wound up being fed to livestock. The difference between June 1 and Sept. 1 inventories that isn’t explained by other categories of demand is assumed to have walked off the farm.

This summer cheap wheat may have supplanted corn in rations. But this may have been more than offset by strong summer exports, leaving Sept. 1 stocks estimates little changed, around 1.712 billion bushels.

The Sept. 30 reports include another update on wheat production. This, plus hard-to-predict summer wheat feeding can cause Sept. 1 stocks for wheat to differ from expectations. Sometimes USDA reports large disappearance from June to August, only to take back some of that usage with adjustments to a fizzy category of demand known as residual usage. This year it appears Sept. 1 wheat stocks could be the most since 2010, around 2.245 billion bushels.

That’s how I see the reports shaping up. USDA may have other ideas, which could cause caution from traders until the news breaks on the wires at 11 a.m. CDT Sept. 30.

Corn prices recovered from losses in the wake of USDA’s bearish Sept. 12 reports, supported by harvest delays and torrential rains in parts of the Corn Belt. But buyers reversed their positions when December futures was unable to break through the neckline of a potential head-and-shoulders bottom on its chart, sending the market back to the next level of technical support.

More in the trade appear convinced the crop is smaller than the government forecasts. But it’s likely not smaller enough to make much of a difference to prices by itself. It’s doesn’t matter much if supplies left over a year from now are 2.2 billion bushels or 2.4 billion. It’s still too much.

A surprise breakout higher now could take December to the $3.68 level, a place to start hedging deferred futures to protect corn stored on farm against a downturn. A rally to buy soybean acres for 2017 or South American weather could lift prices this winter. But the seasonal trend for July corn futures in years of good production is normally lower after a brief post-harvest bounce.

Soybeans rallied sharply for a time after mid-September. Harvest delays and signs of strong export demand took November futures to one-month highs, despite USDA’s projection for a record 4.2 billion bushel crop. But that bubble burst quickly when November failed to continue its advance through barriers on price charts, triggering liquidation.

Friendly numbers for Sept. 30 stocks data could quickly reignite buying. Otherwise, soybeans remain vulnerable to weakness in outside markets. Futures have a strong inverse relationship to the value of the dollar. A stronger dollar tends to mean big speculators are backing off on risky bets, including soybeans. Nervousness about the fallout from the fall election may have as much to do with prices as anything else for a while this fall.

November 2017 soybean futures briefly appeared to be scoring a breakout on their chart, raising hopes of a rally to buy acres for next spring. That surge was short-lived, leaving prices back into trading ranges.

Wheat prices spent most of September consolidating. After trader around decade-long lows, that was a sign of progress.

All wheat production could fall below 2 billion bushels in 2017 if farmers slash acreage as expected and yields return to normal. That won’t tighten surplus inventories much, but it’s a start that could begin to halt selling. Really boosting prices will take disasters in major growing regions. That prospect became a little less likely when rains returned to the Black Sea region following a dry start to seeding.

U.S. winter wheat planting got off to a slow start but drier conditions should allow drills to advance. Conditions are good – perhaps too good, which could lead to more acres going in the ground that the market doesn’t need.

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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