Bullish Price Reaction To USDA's October Crop Reports

October 11, 2012 03:33 AM

What Traders are Talking About:

* Bullish reaction to USDA reports. USDA put the corn crop at 10.706 billion bu., which was higher than anticipated, but projected 2012-13 corn carryover came in at 619 million bu., which was lower than expected. Plus, USDA slashed its global corn carryover forecast by nearly 6.7 MMT. For soybeans, the crop size topped expectations at 2.86 billion bu., but the 2012-13 U.S. ending stocks projection was slightly lower than expected at a tight 130 million bushels. For wheat, USDA's U.S. and global wheat ending stocks forecasts both came in lower than last month. Even though both the corn and soybean crops came in higher than expected, the U.S. corn and soybean carryover figures are getting traders' attention as they reiterate that supplies will be tight through 2012-13.

The long and short of it: Price action signals short-term lows are in place, but now the question is whether there's enough end-user demand to fuel a sustained price rally.

* Chinese soy auction sales slow. China has been routinely selling all of the roughly 400,000 MT of state-owned soybeans it has put up for auction every other week as the auction prices are cheaper than global soybean prices. But this week's offering attracted buyers for only 225,355 MT. The reason: The initial offering price for 2010-crop soybeans was higher than crushers expected at 4492 yuan ($708) per ton compared to 2009-crop soybeans which were sold at 4324 yuan ($681) per ton. While demand for 2010-crop soybeans was less than expected, China will continue to offer these beans at auction every other week as they have ample state-owned reserves.

The long and short of it: With the price hike for state-owned soybeans this week, those supplies are currently priced about equal to imported soybeans. If this remains the case, crushers will seek to import more global soybeans -- if they can get shipments in a timely manner.

* Black Sea wheat export update. Ukraine's ag ministry will allow 5 MMT of wheat to be exported in 2012-13, an increase of 1 MMT from the amount agreed to with exporters in early September. With 3 MMT of wheat already exported as of Oct. 8, exporters are cheering the higher allowance, especially with plenty of global demand. Meanwhile, Russian President Vladimir Putin said Wednesday following a meeting on the grain situation there are no plans to restrict grain exports despite concerns with rising domestic prices. Putin also said only surplus grain should be used for export, not intervention stocks which the government is selling to keep domestic prices in check.

The long and short of it: Even with Ukraine allowing more wheat exports, sales from the Black Sea region are likely to dwindle by year-end, opening the door for more demand for U.S. wheat. Offerings of Black Sea origin wheat on global tenders have already started to slow.


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