While maybe not quite a buy the rumor sell the fact type scenario in the grain and soy markets yesterday, it appeared to at least be a case of post report letdown (PRL). As we will cover, the domestic numbers at worst came in at expectations or were even positive but world numbers were anything but optimistic. As I have commented numerous times in the past, you have to keep providing a bull with fresh feed each day to keep it active and after the recent hype and run-up prices, this one appears to have been placed on a low-cal diet.
The wheat trade was fully expecting to see a slight increase in the carryout projections and the USDA delivered exactly that with a 10 million boost to 654 million bushels. If there was a surprise in the estimate it was how that increase was derived. Export were left alone, which I believe will need to be cut in later reports but imports were boosted 10 million bushels. We know that recently there have been several cargoes of feed quality European wheat booked into the east coast so realistically; the number is difficult to argue with. The biggest surprise though was delivered via the world ending stocks as with a boost in the Canadian production and a slight cut in world usage, this figure was raised 2 MMT to 194.90. By historical standards this is not pushing against any kind of records as we have seen 200 MMT figures several times but it is the highest watermark in three years and another confirmation that there is a very comfortable supply around the globe.
Export sales were up 39% from last week at 442,300 MT or 16.3 million bushels and we even sold 3.1 million bushels for the 15/16 marketing year. The old crop figure was 16% above the 4 and the 10-week averages. With just less than half of the marketing year left, if we can average 11.5 million in sales each week, we would be at the target of 925 million.
While I continue to believe we have a major low in the wheat market, the 6.00 level should continue to provide formidable resistance and suspect we are now moving into a trading range for the weeks and possibly months ahead.
The domestic corn figures actually came in positive as we witnessed a 10 million bushel cut in ending stocks instead of the 10 million increase expected but as with wheat, the adjustment came via an unexpected category. Exports were left alone, which will leave them open to changes next month but the USDA saw fit to boost Food, Seed and Industrial usage by 10 million bushels. Your first reaction would probably be to guess that came via a boost in ethanol but that was not it. Corn usage for ethanol has already been increased 16 million over last year and the total Food, Seed, Industrial category is projected to be up 48 million. Most already expect the seed number to be lower for next year so that means usage in food and other industrial use, is projected to increase more than 32 million bushels. That seems to be quite a bit of extra sweeteners and corn flakes.
While not a huge change, world ending stocks were increased .7 MMT to 192.20 MMT. Argentine production was cut 1 MMT, Brazil was left alone but the Chinese estimate was boosted 1.5 MMT to arrive at this figure. As I said, this was not a major shift but if the trade looks at the overall number it is a reminder that this is a record raw number for ending stocks and the highest stocks/usage ratio since the 2001/2002-crop year.
Exports sales for corn were down 18% from last week at 962,800 MT or 37.9 million bushels. That said, this quantity was still 9% over the 4-week average and 4.5% over the 10-week average. The less than exciting part of the release was the fact that the top three purchasers are the three countries that we expect to consistently be good customers. Japan purchased 595.6k MT, Mexico 244.4k MT and South Korea took 122.1k MT.
The pressure in corn yesterday was really pretty insignificant and with the projected carryout now back below the psychological 2 billion point the report gave bulls nothing to panic about. That said, neither is there anything that you could deem bullish to the point that we should push and sustain corn through the 4.00 level. As with wheat, I suspect we are into more of a trading range at this time and should be set to at least see March futures reach down to the 3.75 base between now and the end of the year.
As I had commented early yesterday morning, the action in the bean market over the past week appeared to indicate there were some really expecting a bullish report. Realistically, they were partially correct as the USDA boosted exports more that anticipated but evidently no one was prepared for CONAB to boost Brazilian production estimates and it blindsided the bull.
The ongoing Chinese demand prompted the USDA to boost exports by 40 million bushels vs. the expected 20 million kick and with no other changes, this figure came right off of the bottom line. While less than expected, we do need to keep in perspective that this figure is nearly 4 ½ times larger than last years carryout and is a very ample supply of beans. On the USDA world estimates, the carryout was reduced .41 MMT primarily reflecting increased usage but as I said previously, the surprise left hook was delivered by CONAB. They released an updated production estimate of 95.8 MMT compared with a previous guess between 89.3 and 91.7 MMT. If realized this would be an increase of 11% over last year and is 1.8 MMT above the current USDA estimate. To a certain extent, I do not know if this matters much on the world balance sheet as if the carryout is 89.87 MMT, which is the USDA estimate or 91.5 MMT, it is still a new record by a wide margin. The previous high water mark was set in 2010/11 at 71.72 MMT with a stock to usage ration of 28.52%. The current will be somewhere north of 31.5%. Yes, we all know China appears to have an insatiable demand for beans at this point but we also know that once they have secured the inventories they are after, the buying could dry up dramatically.
While certainly not disastrous, sales did slip this past week to 810,300 MT or 29.8 million bushels. This number is down 31% from last week, 20% below the 4-week average and 32% below the 10-week average. While I do not have the numbers in front of me, I cannot remember the last time China was not the largest purchaser but this past week Spain was on top at 257k MT, China number two at 217.2k MT and Japan at 74.7k MT. It is interesting to note as well that within the number to Spain, 58.4k MT were a switch from China.
The reversal in beans posted after the report would seem to suggest the rally is complete but we have not really seen any major follow-through so far this morning so the bulls have not completely surrendered yet. That said, without a weather disruption now in South America, it would appear the odds are stacked heavily against him.