Today’s report and market reaction
Nov 10, 2008
The November USDA Supply and Demand report came out very close to expectations. Production was a little lower but exports were reduced because of concern about weak global demand. Bean carryover was left unchanged at 205 billion bushels but corn was increased 1.124 billion bushels. The commodity with the real concern will be wheat with an overall increase in domestic and global carryover. The other commodity that was hit hard today was cotton. World stocks increased from 55.45 to 57.40.
The big impact is that the bearishness of wheat and cotton is going to force crop mix decision modifications for many Southern producers next year. The tone I’m getting right now is with lead month cotton below 40 cents, acres are going to shift to beans.
I was a little surprised with the lack of follow through to the bean market today. We had overnight session up clear to $9.51 but then fell on confirmation of the numbers the trade wanted. You never like a positive report and bearish reaction. This could keep beans in a very choppy trading pattern over the next week. Many traders in beans will be watching crude oil and the dollar for direction.
As for corn, the carryover numbers are not moving in the direction for higher prices. Granted we are getting close to the time period when the bin doors are going to shut, but the potential of significant price recovery is difficult to predict with carryover increasing. The market is going to have to see positive signs that economic conditions are not going to decline any further and no further drop in demand before any type of sustained rally can occur. Essentially, I’m not really that bearish to lead month corn below $3.75. The issue is how much rally can we really expect to see?
Side note: I continue to be worry about the hog and cattle sector because of potential exposure of reduce export of products. This is something we are going to have to watch very closely.
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