Focus Should Be On Corn Demand

May 10, 2013 01:14 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn and wheat futures are lower in most contracts while soybeans are mixed. Light and choppy trade is expected this morning ahead of USDA's Crop Production and Supply & Demand Reports at 11 a.m. CT. Cattle futures are expected to open steady to firmer with hog futures likely to favor the downside this morning.


* Focus on corn demand. The focus of USDA's first 2013-14 balance sheets will be on carryover, as corn and soybean ending stocks projections will rise sharply from the current marketing year. Traders are also curious to see how much USDA lowers its corn yield forecast due to the slow planting start. But where the focus should be is on the demand side. Everyone already knows yields and production will almost assuredly rise sharply after last year's severe drought. The longer-term key to the corn market is how quickly the demand base rebuilds. This morning's numbers will give traders USDA's initial assessment of the situation. And it will largely be the usage estimates that determine if this morning's report data gets a bullish or bearish "read."

The long and short of it: A new-crop corn carryover projection over 2 billion bu. would be bearish. It would likely take a carryover projection around 1.6 billion bu. to get a strong bullish response. USDA's usage projections will largely determine which end of that range the initial 2013-14 carryover projection falls.

* First winter wheat crop estimate also out this morning. USDA's first survey-based estimate of the winter wheat crop will show much smaller production potential than year-ago as a sharp drop in HRW production will more than offset a bigger SRW crop. Total wheat production is seen coming in nearly 200 million bu. lighter than year-ago. HRW production is seen down 239 million bu., while SRW production is expected to rise 76 million bu., based on the average pre-report guesses.

The long and short of it: It's known HRW production will be down and SRW production will be up from year-ago. How those numbers line up with pre-report estimates will be the key to the price reaction.

* South Korea sees a buying opportunity. South Korean firms have loaded up on corn and wheat this week ahead of USDA's reports. In total, South Korea has purchased 323,000 MT of corn and 55 MT of feed wheat this week, with all four of the country's major feedmakers making at least one purchase. There has been some other wheat demand, but most global end-users are choosing to wait before extending bookings. .

The long and short of it: The South Korean demand is a sign of "value" in the marketplace, but it's going to take additional global end-user demand to spur sustained buying interest in grain futures.


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