Lower Grain Demand and Increased Soybean Yields
Oct 02, 2012
Grain "demand" however continues to be heavily debated. The recent USDA report showed us that "feed usage" was NOT being rationed as much as many had anticipated during the most recent round of higher corn and wheat prices. Even though this is bullish data, we have to keep in mind "feed usage" numbers are only reported quarterly, while "exports" are reported weekly, in many cases even daily. My point is the trade may be somewhat conditioned to respond more frequently and more emotionally to "exports" since they are so often in the headlines. With corn exports constantly being reported as "poor," it makes it extremely tough mentally for bullish traders to stay excited about overall "demand." Certainly we can sit here and rationalize on paper the fact that corn exports are really not all that big of a deal, but emotionally in your head it's hard to get overly excited when you see South American supplies not only being sold to our biggest US corn importers, but also seeing our own end-users import cheaper corn from South American suppliers as well. Remember, trading and overall money-flow is not solely predicated by the actual fundamental supply and demand numbers, there is also a great deal of human emotions involved in buying and selling. My point is, if the larger traders continue to believe "demand" is in question (to any degree) then very few will be willing to be net flat price buyers.
Soybean markets continue to digest thoughts that not only are last year's soybean production numbers in the US being increased (as reported in this past Friday's USDA report) but so are this year's soybean estimates. Most analyst are now thinking the USDA's current 35.3 bushel per acre yield estimate could be 2-3 bushels per acre too low. Throw on top record production being anticipated for South America and you can see why many are starting to pencil in a much more palatable number in their balance sheets. In fact, Goldman recently lowered their 12-month soybean price outlook down to $13.50 a bushel. Keep in mind, this is down about $2.50 a bushel from the last forecast. Depending on what the latest trade estimates show us during the next couple of weeks, we may continue to stay under some supply side pressure. I should also note there were some rumors flying around yesterday that China might be thinking about imposing value added taxes on meats, poultry and eggs which could ultimately curtail demand and possibly ease feed usage to come degree. I continue believe there is more room to the downside as "supply" has not yet accurately been defined. My thoughts are we are going to end up with more bushels in the October report than what the USDA last estimated. I continue to believe near-term technical support is right around the $15.35 area. If this level doesn't hold I am afraid the soy market could quickly tumble to the mid-$14's. In any regards, I have to imagine that final push during the next couple of weeks will mark the fall harvest price lows in soybeans. Be cautious, but it might be time to think about dipping a toe back in the waters.
As for today the trade seems to be anticipating another round of somewhat more bearish crop data coming from FCStone, Informa, StatsCan, CONAB and the USDA during the next seven trading days. Thoughts are not only will yields improve to some degree but so will planted acreage estimates both in North America and South America. In an effort to stay ahead of the potentially growing production numbers the funds continue to use the rallies to lighten the load, exactly what they have doing the past few weeks. The "technical" picture is certainly becoming more clouded as well. As I have mentioned time and time again this is NOT the environment to be chasing rallies. Producers should have made all of their 2012 sales by this point, now content on storing a small portion of their bushels in anticipation of an early 2013 rally.
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