Markets Wait for WASDE

December 9, 2015 04:00 AM
Markets Wait for WASDE

While USDA’s adjustments are expected to be minor, the grain and soy markets continue to deal with challenging and changing global factors. 

As the calendar flips to the last World Agricultural Supply and Demand Estimates report of 2015, the trade is planning to see only small revisions to the latest numbers for grain and soy on Wednesday.

“Expectations in the trade are basically (in the area of) a rounding error—a few million bushels, which is not terribly significant,” said Marty Foreman, senior economist for Doane Agricultural Services on Market Rally with Chip Flory. (Click here to listen to the Dec. 8 show.)

A poll of analysts by Reuters gives the following average estimates for U.S. ending stocks:

  • Corn: 1.768 billion bushels, which would be a slight increase over November’s 1.760 billion bushels.
  • Soybeans: 462 million bushels, which would be a slight drop compared to November’s 465 million bushels.
  • Wheat: 918 million bushels, which would be an uptick for November’s 911 million bushels.

While USDA’s adjustments are expected to be minor, the grain and soy markets continue to deal with challenging and changing global factors.

“Grain markets are mixed as the list of bearish fundamental seems to never end. The WTO decision, Argentina’s new president, large grain ending stocks in U.S. and Canada, the forecast for another record crop out of South America and good weather in South America contribute to overhead resistance,” said Paul Georgy of Allendale in The Allendale Wake-Up Call. “However, support comes from firm cash markets in the U.S. as farmer’s bin doors are locked. Expect choppy trade through holidays.”

Others see more cause for optimism, at least for corn.

“I think the report has the potential to be a little bit positive,” Foreman said. “I think the tradeoffs here will really depend on what they do with exports. There will probably be a cut in exports—I wouldn’t be surprised to see a reduction there. But offsetting that, I wouldn’t be surprised to see a bump in corn for ethanol … With the (renewable fuel standard) announcement, we could see that more than offset the cut in exports.”

Naomi Blohm of Stewart Peterson, speaking on U.S. Farm Report, also viewed EPA’s Nov. 30 news as supportive.  

“The one thing that I appreciated … was that what they had … for ethanol was 14.5 billion gallons, and what that equates to in terms of corn use was exactly what USDA had pegged,” she said. “It keeps a nice floor in the market. It keeps the demand there. It wasn’t anything to make the market go higher, but it was just welcome news.”

The soy situation is a little more problematic. On the bullish side, the EPA’s increase in biodiesel gave a boost on the bean side. “The soy oil market really responded to that announcement more so than the corn market,” said Julianne Johnston of Pro Farmer.

Watch the U.S. Farm Report segment on the RFS here:

But worries remain about Argentina and how quickly farmers might start unloading their soybean stores on the world market. The same goes for corn and wheat.

“The Argentine announcement of reducing or eliminating tariffs on corn and wheat is going to encourage those producers to sell their grain that they’ve been hoarding, and it’s going to be moving to the market,” said Johnston. “This is a weight on the global market. However, if we do see the dollar help U.S. markets become more competitive, we could find some hand-to-mouth buyers, but with the global situation we have with plentiful grains across the globe, it’s going to be hard for the U.S. to remain competitive.”

The lifting of the tariffs could also encourage Argentine farmers to grow more corn and wheat, which Blohm sees as particularly problematic for wheat. “We already have a huge surplus of wheat around the world, and now we’re just going to add to this glut,” she noted.

But Angie Setzer of Citizens Grain, also speaking on U.S. Farm Report, sounded more skeptical, given the logistics and politics involved in Argentina right now.

“Even if they do come in and remove the taxes, Argentina relies on … this revenue as a source of government funding in the GDP. The million-dollar question is, when you have nearly half of your population relying on government services, what do you do to replace that revenue?” she asked. “When you have one good game in town, i.e., the farmer in Argentina, what are you going to do to replace that revenue source? I’m still a little hesitant to think we’re going to walk up in the middle of December and have boatloads of wheat being shipped out of Argentina.” 

Watch the U.S. Farm Report segment with additional comments on Argentina here:

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