Another USDA Curveball Buckles The Corn Market's Knees

May 10, 2012 05:22 AM
 

What Traders are Talking About:

* USDA data -- bullish beans; bearish corn. USDA cut its old-crop soybean carryover estimate to 210 million bu. and projected 2012-13 soybean ending stocks at 145 million bushels. Both were lower than anticipated and paint a bullish picture moving forward. For corn, USDA surprised traders by raising its old-crop corn carryover estimate to 851 million bushels. While still tight, that's nearly 100 million bu. higher than expected. The wheat data was a mixed bag as the first winter wheat crop estimate came in higher than expected, but USDA's old- and new-crop carryover forecasts were lower than anticipated.

The long and short of it: The report data will keep corn futures under pressure, while this should secure a short-term low for soybean futures. Long soybean/short corn spreads should be active near-term.

* China buys corn. Rumors of Chinese purchases of U.S. corn were rampant yesterday and Reuters later reported deals for around 500,000 MT (mostly 2012-13 delivery) were done this week, citing trade sources. It's not surprising to see China buy U.S. corn on price breaks as that's been happening for over a year now. But the interest in new-crop corn signals China's need for corn is more than a short-term issue. While that's been widely suspected, the purchases for 2012-13 delivery are proof. Despite the Chinese corn buys, futures slumped as macro-economic concerns, jitters ahead of USDA's initial 2012-13 yield and carryover projections this morning and heavy fund liquidation (14,000 contracts; 70 million bu.) trumped the demand talk.

The long and short of it: While traders ignored the Chinese demand news yesterday, this is one way that the market can chew through what's currently expected to be "excess" corn supplies during the 2012-13 marketing year.

* China's April trade surplus grows more than expected. China amassed a trade surplus of $18.4 billion last month, up from a surplus of $5.35 billion in March. Chinese imports increased 4.9% over year-ago, while exports grew at only 0.3% clip -- both well below expectations. The slowed growth pace in exports, but especially imports, signals weakening economic activity domestically and abroad. Through the first four months of this year, China's trade surplus stands at $19.3 billion. Meanwhile, Chinese soy imports rose to 4.88 MMT last month -- up 1% from March and 26% above year-ago. For the first four months of this year, Chinese soy imports stand at 18.15 MMT, a 22% rise from the same period last year.

The long and short of it: The slowed economic activity points to further pro-growth measures (cut to bank reserve requirements), although few are expecting the Chinese government to have a knee-jerk reaction to the April trade data.

* Conab unexpectedly raises Brazil bean crop forecast. Conab (Brazilian government) raised its forecast for the 2011-12 bean crop to 66.7 MMT from 65.6 MMT last month. That's a surprise given private crop estimates continue to decline. Conab also raised its corn crop estimate to 65.9 MMT from 65.1 MMT last month, which is not a surprise as the safrinha (second season) crop has received recent beneficial rains.

The long and short of it: While the bean crop estimate is a surprise, traders will discount it as they believe the crop is still getting smaller.

 

Follow me on Twitter: @BGrete


Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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