Look for April WASDE to Reinforce Positive Price Bias
Apr 09, 2012
If the USDA’s Prospective Plantings and Grain Stocks reports of March 30th fulfilled their historical role as a catalyst for dynamic price action, what then can we expect in USDA’s monthly World Agricultural Supply & Demand Estimates (WASDE) this Tuesday, April 9th? In a nutshell, look for the April WASDE report to broadly reinforce the price supportive aspects of the March 30th reports. Just as markets trend, building on new information, so do major USDA reports.
Understood is that the April WASDE has traditionally been viewed as one of the lesser candidates for generating a pronounced price response. Historically, the trade accepts as being a perfunctory "pass-through" exercise while awaiting the release of the May S&D report. It will be the May WASDE, released on Thursday, May 10th in which USDA sets forth its initial projection for both crop size and demand the 2012/13 crop year.
However, this Tuesday's April WASDE has morphed into something of outstanding importance – this particular report, in this particular crop year is NOT a simple minor stepping stone between the Prospective Plantings and Grain Stocks and the all-important May WASDE. What’s in play here and at ultimately at stake?
1) It is THE first platform for USDA to reconcile 2011/12 end stock levels for corn, soybeans, and wheat with across-the-board greater than expected 2nd Quarter use.
2) Old crop corn and soybean end stocks will contract further, while any positive impact of a downward revision in wheat stocks will be muted near-term by both domestic and global supply considerations. Again, this is based on physical supply as of March 1st, as reflected in the March 30th Grain Stocks report.
3) In addition, given the ongoing pace of corn and soy exports, both these line items on the demand side of the 2011/12 balance sheet are already positioned as prime candidates for upward revisions. It is when, (not if) that occurs end stock levels will decline further.
4) The most recent robust export sales report released this past Thursday, April 4th covered the week ending March 29th. It was foreign end-users taking advantage of a modest pre-report pull-back in soybean values and a more striking decline in corn. The market/reports have subsequently rewarded their aggressive moves as prices have moved sharply higher subsequently.
5) Past the April WASDE, keep eyes on USDA weekly export sales report for the next 2-3 weeks for evidence of corn and soy demand resurfacing at higher levels. First post-crop report export sales week ending April 5th is scheduled for release Thursday, April 12th.
Bottom-line: Tuesday’s April WASDE is more likely than not (at a minimum) to serve to positively reinforce recent price gains in old crop corn and old/new crop soybeans. Corn and soy complex end-users are advised to cover near/mid-term needs. Producers need to be aware that demand rationing rallies can also be regarded as demand destruction. The process takes time with neither end-user nor producer having the luxury of becoming complacent in the current market environment.
Additional research and analysis is available – limited no-cost/no-obligation trial. Contact: Greg Wagner, GWX Ag Advisors, O 888.247.8751 / C 708.288.8055 / Email: GWXAG@comcast.net