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Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

What Producers Need to Know Ahead of Tomorrow's USDA Report

Aug 09, 2012

   

Tomorrow morning's USDA report is slated to be one for the ages. The USDA is looking at a next to impossible task of estimating the US corn and soybean crops. I continue to talk to producers each and every day that are seeing a vastly wide range of results from field to field and from seed variety to seed variety. With many producers not being 100% certain about their own production, I find it terribly hard to believe the USDA is going to be extremely accurate with their figures. We are going to need hard data from harvest to get the real picture. Unfortunately, that is still a ways off. Obviously the production numbers will be lowered aggressively in corn and to some degree in soybeans, the question is how will the market react? My guess is if the corn numbers are conservative the bulls will immediately start to predict more cuts in the coming months. I honestly doubt any type of long-term sustained break in corn prices are upon us. Producers looking to make more sales or lock in a "fall harvest" insurance price should remain patient and pull the trigger exclusively on the rallies. Do NOT panic and sell into a knee-jerk type break that could be associated with tomorrow's report.
 

USDA report estimates and what the trade will be looking for: Remember, this will be the first one taking into account actual "farmer surveys."

  • Corn Yield - This is obviously the big one. Most seem to be looking for a 127.3 yield number. This seems like it might be a little extreme for the USDA at this point. Keep in mind, they just went from a 166 yield number down to a 146 number last month. Another 19 bushel cut might be asking a little much. A 129 number or higher will certainly disappoint the trade, while a 125 number or lower will have the bulls running.
  • Corn Harvested Acres - This is the one I really want to see. Just last month the USDA was estimating 88.9 million harvested acres. The trade seems to be looking for a number just below 86.5 million acres. Unfortunately, I think we are trading a number right around 85 million or even a little lower. My point is if the USDA doesn't cut at least 3 million acres, the trade will be extremely disappointed.
  • Corn Production - Last month the USDA had us at 12.970 billion bushels, a cut of 1.82 billion from their June estimate of 14.790. This time around most seem to be thinking the USDA will cut another 1.94 billion, placing total US corn production at or around 11.025 billion bushels. This sounds like another massive cut, but with many in the trade already penciling in a sub 10.5 billion bushel crop, the trade might not be all that excited.
  • Ethanol Usage - There is talk that the USDA could lower corn used for ethanol in the 2011/12 balance sheet by 50 million bushels. While lowering yet again their 2012/13 ethanol usage numbers by another 200,000 to 400,000 bushels.
  • Corn Exports - This number, similar to ethanol could be further reduced in both old and new crop balance sheets. The 2011/12 exports could be cut by 25-50 million. While the 2012/13 exports could potentially be cut much more severely.
  • Corn Ending Stocks - All I am saying is don't be surprised. If the USDA raises their 2011/12 corn ending stock number. I am guessing the 2012/13 ending stock number will fall from the recently reduced 1.183 billion mark down closer to 800 million. I could definitely pencil in a lower ending stock number for 12/13, but knowing the USDA rarely likes to go below this imaginary line my best guess is somewhere around 800 million.
  • Chinese Corn Production - Last month the USDA was estimating Chinese corn production at 195 million compared to 192.78 million the previous year. Now all of a sudden there is all of this talk about a bin busting crop in China and thoughts that the USDA might push Chinese corn production higher into the 198 to 200 million range. I am not saying the USDA won't push the Chinese corn estimate higher, because I am sure they will, I just question the accuracy of the information coming out of China. I have talked to several individuals that have been inside China the past few weeks and no one is reporting a "record" type crop. Average, yes...record, NO!
  • Ukraine Corn Production - The USDA last forecasted Ukraine's corn production at 24 million metric tons. Now all of a sudden the trade is wanting a cut of 4-6 million. My guess is it will take a reduction below 20 million tons to excite the bulls.
  • Soybean Yield - The USDA shaved their estimated soybean yield from 43.9 in June down to 40.5 in July. Most in the trade believe we will see another round of similar type cuts and a drop to 37.75 bushels per acre is now a reality. The recent rains and improved soil moisture levels in some areas has many in the trade thinking the USDA will not cut the soybean yield this far this early. They might be right!
  • Soybean Harvested Acres - This one is a little tricky. I continue to hear talk about how the harvested acres need to be reduced by between 500,0000 and one million. The current USDA estimate is calling for 75.3 million soybean acres to eventually be harvested. The trade however believes this number should be down closer to 74.8 to 74.3 million.
  • Soybean Production - The USDA lowered their soybean production totals from 3.205 billion in June to 3.050 billion in July, now the trade is calling for a drop to 2.81 billion. Many in the trade believe we have already priced in a 2.8 billion bushel crop and it will take a lower number to really excite the trade. I just don't think we are going to get it. In fact, I am not all that sure we are going to see a cut below 2.9 billion on this report. I still remain bullish soybeans longer-term I just don't think you are going to see the entire picture painted in this report.
  • Soybean Ending Stocks - There is some talk the 2011/12 ending stock number could be cut from 170 down below 150 million on higher exports and higher domestic crush estimates. I am not really in this camp as I believe a large portion of the existing old crop exports may simply be rolled into new crop sales. Therefor some of the bulls might be disappointed. As for the 2012/13 numbers, I am just not sure we are going to see the USDA move below the 130 number they threw out last month. I know many analyst are penciling in a "zero" or in some case "negative" carry. I am telling you now, the USDA is NOT going to make that kind of move. In fact, it wouldn't surprise me to see them leave the ending stock number unchanged even on lower production numbers. My hunch is they will simply lower export and crush estimates on thoughts that higher prices will ration demand. Once again this could be viewed as bearish and might produce a knee-jerk reaction to the downside.
 

This is just a quick summary of my thoughts on corn and soybeans.  If you would like my full summary ahead of the report, you can sign-up here to receive a FREE-NO RISK trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  


 

 

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