Accounting for the USDA
Aug 12, 2014
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This August USDA WASDE report was a big deal for markets going forward. Certainly for the raw data that it provides, but maybe more so for the reactions it has generated. Since this report was released I have seen analysts writing that the lows may now be in while others say that this now sets the stage for new lows. For the most part the trade is now very much divided about yield prospects this year. The Pro Farmer crop tour may shed some insight here, but lets take a look at the USDA balance sheet for corn and see how both the bull case and the bear case can be made.
The USDA is pegging the national average corn yield at 167.4 for now. This was well below the range of trade guesses of 168-175. So this corn report found a bit of a bullish vs. expectations reaction. However, adding 2.1 bushel an acre to an already record national average yield expectation is a big move for the USDA. Some will argue that this is the first step the USDA is taking to raise yield expectations and there will be more to follow. Others may argue that crop conditions may start to decline from this point forward, as they seasonally do, making higher yield estimates harder to justify.
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The USDA may have left the back door open for themselves, as they like to do. Harvested acreage was unchanged at 83.8 million acres. Some will argue, myself included, that harvested acreage should be closer to 83 million acres. So, if the USDA needs to raise yield again they could go to a 168.9 national average yield with a lower harvested acreage number of 83 million acres (vs. 83.8 currently) and still come up with a production number very close to their current estimate of 14.032 billion bushels. Or, if conditions start to fall they could leave yield and harvested acreage unchanged and still keep production unchanged.
The bottom line is that this report has sparked many strong opinions about where the USDA and markets could go from here. Ultimately the numbers we are looking at are still bearish numbers but much of that has been factored in already? This report was expected to be bearish, and it was, but was it as bearish as expected? Now the market has more to talk about then just super sized yields. It will be interesting to see what the next few days bring after Dec corn fell just one tick short of putting in its second key reversal in less then two weeks. One thing is clear, the bulls and the bears now have something to talk about.
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December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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