USDA adjusts production figures today!
Oct 28, 2008
So much for the USDA being unbiased and not trying to put a bottom in the market! Instead of waiting to the November USDA Supply and Demand report to adjust numbers, the USDA in a surprise announcement after the close yesterday decided to adjust numbers today. It lead to an impressive Project (A) price bounce to $4.0975. Today the USDA lowered planted acres to 85.9 million acres down from 86.9 million with a modest reduction in yield the crop size was reduced 167 million bushels. While this was a bullish figure, it was not as much as the trade expected. Equally, they lowered usage by 100 million bushel so carryover was only reduced 67 million bushel. While encouraging, it was not near the pre-report expectation which allowed the market to fall back.
As I look at the corn complex, today’s report helps to give more confidence now that lead month corn has found a low. Feed buyers and all speculative buyers will be looking to buy between $3.80 and $3.50. The issue at hand however is how much of a bounce do we have in front of us?
The CME had a good article about demand (posted on Web site). They interviewed several ag economists who collectively came up with the opinion that demand for ag products is going to be more inelastic (usage will not change much with change in price). While I do agree to some extent, I’m still quite concerned about our exports if the global economy continues to shrink. The three impacts on corn and beans: First, livestock production could decline if it sees a significant drop in live product exports. Second, the potential for cheap import of ethanol. Third, the overall decline in corn and bean export due to end user belt tighting.
Summary: The fundamental impacts are still very fluid and uncertain. I want to be a buyer of corn and beans on breaks but I would suggest your be cautious. Don’t trade more contracts than your bank account will allow. Bottom line: exercise good risk management.
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