Jul 11, 2014
Alert: USDA Report out at 11:00 AM Central Time today
Markets are trading sideways coming into today’s USDA report. At the moment we see corn up a penny, soybeans up a penny and wheat unchanged.
With the crop good-to-excellent ratings on soybeans at a 20 year highs, yield will likely be left alone from the June report. This means 14/15 soybean supply is likely to come out 169 million bushels over last month's WASDE report and up 425 million bushels from last year. The average analyst expects ending stocks to be reported at 418 million bushels which would imply that demand would increase nearly 76 million bushels from June's report, less than half the expected supply increase. Looking back over the last 14 years we would expect the majority of the demand gains to come from exports which responds more readily to large changes in supply and price. In 2006/07 when supply increased 10% year-over-year, export sales made up nearly 3⁄4 of the demand response to the increased production. In 2009/10, another year with a 10% increase in supply, we saw export sales account for 70% of the demand response year-over-year.
Trade estimates for 14/15 U.S. soybean ending stocks do not factor in a robust response from the demand side as seen in 2009/10 or 2006/07. This sets up the soybean market to possibly miss demand expectations in the report report today in a way that could provide some strength to the market following weeks of sharp selling. However, we feel any bounce should be used as a pricing opportunity as the long term fundamentals look undoubtedly bearish. During the 2006/07 marketing year prices approached $9.00 per bushel and looking back to 1975 soybean prices have found support around the $9.00 per bushel level. These historical benchmarks are important as we enter a very different marketing year from what traders have become accustomed to in recent growing seasons.
Traders expect the USDA to add 48 million bushels to new crop corn ending stocks, bringing the total for 2014/15 to 1.774 billion bushels. This would be the largest carryout since the 2005/06 growing season as yield is expected to make up for a relatively small acreage figure. 75% of the crop remains good-to-excellent and with each passing week of near ideal weather the "pollination weather premium" is leaving the market. Trend-line supports sits at $3.80 looking at the daily December 14 corn chart. Looking longer-term we would expect support around $3.25 on December futures based on price action from 1975 to present. This market has already sold off substantially but it is important to look at the big picture when pricing grain coming into today’s USDA report. This month's sell-off has been dramatic on the daily corn chart but is a relatively small move when looking over a longer time frame.