Corn: Monday was another strong day of trading despite the bearish USDA report. Trade was looking for carryout to fall from 714 down to 636 million bushels. Instead, USDA posted a minor revision to of 672. USDA told us production was cut by 417 million bushels. They suggested demand would offset that by 400 million bushels. Mix in carry-in and we get a final number not nearly as low as trade expected. Yield was actually lowered down to 148.1 which is what many bulls focused on today to help push the market higher on a bearish report.
Monday saw the smallest trading range that we have seen compared to the last four supply/demand reports. That might suggest the number was not as much of a surprise as previous ones we have seen. Another factor to justify active buying was the fact harvest acreage was not changed. Any adjustments to that number are expected on the October report instead. Put together lower than expected yields, disbelief in the demand number, and possible lowering of acreage, then you have a case to look ahead instead of behind.
After Monday's trade was completed, the result was impressive but will need one more strong day Tuesday to make the chart look good. As it stands now, today’s bounce simply fits in a down channel formed from the active selling leading into this report. Fundamentals have plenty of doubts to be bullish on and technicals are undecided as of yet. Bulls will need other grains to bounce as well, as going against beans/wheat can be done for one day but it is not a trend that lasts long. Bears will point out that every time USDA lowers production, they will also lower demand taking bullish steam out of low yield numbers. Bottom line today is that the reaction was impressive but this market still appears to be a buy on a pullback rather than chasing after one strong day…Ryan Ettner
Soybeans: The USDA report was a bit of a surprise for beans. With a new yield number of 41.8, USDA jumped 0.4 bushels and increased ending stocks to 165 million. We feel this number is too high and we feel we could see some adjustments in the future. We are still looking for 40.7 as a national yield. That would bring stocks/use to 4.0% and a carryout near 124 million bushels. If we hit our projections we should see futures prices back up near 1475 on the high end. Weather will also need to be watched closely this week.
The American weather model has moved very cold temps across the northern part of the nation’s midsection for later this week. It is suggesting we could have a frost as far south as Southern South Dakota, Southern Minnesota, and Wisconsin with a freeze for North Dakota and most of Minnesota. The European weather model does not show this cold snap and has no damaging temp for the next several weeks. We feel if this cold weather occurs, we could see a potential 15 million bushel drop in production. Funds were sellers today of 9,000 contracts and closed the November contract below 1400. A second close below 1400 will look negative but we feel we have enough support from the weather maps to get a bounce from these levels…Steve Georgy
Wheat: Wheat sold off for the fifth day in a row Monday. USDA came out with a bearish report today. The goverment raised the U.S. ending stocks 90 million bushels. They are now projected at 761 million bushels. This was up from last months 671 million bushel estimate. Even though the USDA cut corn used for feeding by 200 million they left wheat feed usage unchanged at 240 million bushels. So for feed demand, the real question is did we really lower feed consumption by 200 million bushels in the past 30 days of corn pricing?
On the export front, USDA lowered exports by 75 million bushels. With the poor export pace the past few weeks, as well as with all the strong competition in the world export market, Allendale agrees with the cut in demand. USDA did not make any supply revisions on his report. We anticipate that they will make these revisions on the September 30 Small Grains Summary report. Allendale anticipates that this report will show that the current wheat production number is 70 million bushels to high. As for the world numbers, USDA estimated ending stocks at 194.6 million tonnes. This is up from 188.87 million month and was higher than expected. As for Allendale’s view of the wheat market, we have a neutral stance. The markets direction will be dictated by rain chances in the plains as well at the corn markets movement….Jim McCormick
Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.