A BRIEF DEBRIEFING
One cannot understate the extent in which the tone of the grain markets have been altered in the aftermath of the March 28 Quarterly Grain Stocks report. Physical supply in corn, soybeans, and wheat as of March 1, 2013 exceeded trade expectations to such an extent that the effect will be enduring. The substance of the report will restrain the inevitable rallies that will occur this growing season.
Not only has the historically tight old crop end stocks scenario in corn and soybeans been substantially relieved, but those additional bushels will find their way into the 2013/14 balance sheets in the form of higher "carry-in", as well. That is the net effect, fundamental reason, why dramatic price weakness was experienced in both old and new crop corn, soy, and wheat contracts.
The impact of the Prospective Plantings report is a far removed secondary consideration to the Grain Stocks report. A quick scan of the Planting Intentions numbers reveals corn and wheat coming in on the dime within trade expectations. So, the trade would cast them as "neutral".
"BULLISH" SOYBEAN ACREAGE FORECAST?
And what of soybean acreage? At 77.1 Mil acres planting intentions are a gaping 1.3 Mil acres below average trade estimates. That’s 400,000 acres less than what USDA offered up at the Ag Outlook Forum five weeks ago. Normally that might be called "supportive". Yet, November 2013 new-crop soybeans drop over $.25/Bu and close at the lowest level seen since late July 2012.
So, we project the same percent harvested acreage and trend yields of 44.5 BPA, as presented at the Forum, and we’re looking at production being a mere 19 Mil Bu less than the 3.405 Bil Bu forecasted. The kicker is the (still current) end stocks number of 125 Mil Bu that was plugged in then. However, with 2nd Quarter physical supply of 999 Mil Bu - some 50 Mil Bu above trade expectations – there are simply a larger physical supply of soybeans around than previously thought.
Whether that is a consequence of an underestimation of the size of the 2012 soybean crop or any other assorted factor on the demand side is beside the point. The reality is that a chunk of that 50 Mil Bu differential is likely going to find its way into old-crop end stocks and carried into the 2013/14 balance sheet. Going forward, look for old-crop soybean and soymeal export sales to slow and crush decline. Over time, these demand drivers can be expected to better align with USDA forecasts.
Any lingering concerns held in some quarters that the US was going to run out of soybeans in 2012/13 should now be greatly diminished. That is what the market response to the reports telegraphed, not a personal opinion. The belief expressed here ( 3/16 post) that the old crop soy complex S & D dynamics had a historically strong track record of being able to reconcile the demand trajectory without a tumultuous spike higher in prices is reinforced.
There is a full growing season ahead and values will be continually adjusting to each fresh fundamental input. Weather, planting progress, export sales, shipments, crush pace. There never is a ‘beeline’ drawn in the price discovery process. In other words, despite a rather dramatic shift in soy fundamentals, pricing opportunities will be presented and be prepared to take advantage of them.
Ongoing trade focus is always going to be directed to evolving fundamentals. But keep this as an observation drawn from 30 years of experience in futures markets - though markets’ "price pivot" on fresh fundamentals (such as were presented today) they do so frequently in synchrony with a technical profile. Producers and end-users alike need to be mindful of both in the coming days.