Walsh Commercial Hedging 5/10/12
May 10, 2012
Good afternoon. The USDA came out with their monthly Supply/Demand and production tables this morning and left some corn traders scratching their heads. First off, let’s start with the wheat numbers. The USDA pegged winter wheat production at 1.694 billion bushels which was about 55 million above trade expectations. All wheat production was pegged at 2.245 billion bushels which was up 50 million from expectations. They pegged U.S ending stocks for the 2011/12 season at 768 million bushels which was about 12 million below trade expectations. For the 2012/13 season, ending stocks were pegged at 735 million bushels which is 50 million below trade expectations. World ending stocks for the 2011/12 season came in at 197.03 million tones as compared with 206.27 million last month as feed usage was revised up by 16.5 million tones. July wheat finished up 1 ¼ at 601 ¼ on two-sided choppy trading. The higher close after posting a new low for the move is seen as a positive technical factor; however, wheat might be weighed down by the bearish corn numbers.
Now the corn numbers were a bit surprising, especially old crop ending stocks. The USDA previously gave a forecast of 801 million bushels, but many in the trade thought supplies were tighter due to factors including recent Chinese purchases of U.S corn. However, U.S corn ending stocks for the current 2011/12 marketing year were raised to 851 million bushels, a 50 million bushel increase from last month and up about 100 million for trade expectations. Feed usage was adjusted lower by 50 million bushels and other usage numbers were left unchanged on the month. Corn production is expected to rise even higher this year with a new forecast for a record-level 14.79 billion bushels. That’s a jump from the 12.358 billion bushels last year. Also, the USDA pegged corn yields at a record high 166 bu/acre which pushed ending stocks for the new marketing year to a whopping 1.881 billion bushels which was up from trade expectations near 1.71 billion. The record high yield was calculated by not using last year’s yield in their 20 year trend calculation and by raising the yield by 2 bu/acre due to early plantings. Also, Brazil production was revised to 67 million tones from 62 million last month. As a result, world ending stocks came in at 127.56 million tones as compared with expectations near 122 million. All in all, the corn market did not see anything “friendly” come from the report. July finished down 19 ¾ at 587 ½ and new crop December down 9 ½ at 507 ¼. We’ll see if December corn can hold that $5.00 mark in the coming days ahead. I would strongly urge producers to have some sort of “put” protection in place in corn.
The only really “friendly” numbers that came out of the report were for soybeans. Old crop bean ending stocks were pretty much in line with expectations at 210 million bushels. However, for the 2012/13 season, ending stocks are projected at just 145 million bushels which is 20 million below expectations and is the lowest May estimate since 1988. World ending stocks came in at 53.2 which was right on expectations. Brazil production came in at 65 million, down from 66 million last month and Argentina was revised down to 42.5 million from 45 million last month. All in all, the new crop demand numbers appear conservative but the tight outlook leaves little or no room for error as far as weather disruptions. July beans finished up 25 at 1455 ¼ and new crop November was up 25 ½ at 1359.
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