No Foolin, USDA's Grain Stocks Shock the Corn Market Again

April 1, 2013 12:56 AM

What Traders are Talking About:

* Grains still reeling from USDA's shocker. Old-crop corn futures finished limit down last Thursday in reaction to USDA's report data and are leading losses this morning on the return from the holiday weekend. The source of the price pressure is March 1 corn stocks, which came in nearly 400 million higher than traders anticipated, suggesting second quarter 2012-13 corn use was either much slower than anticipated or the 2012 corn crop was understated. Either way, this suggests USDA will sharply raise its old-crop corn ending stocks projection in the April Supply & Demand Report. And that also means there's now more of a supply "cushion" for 2013-14 before the planting season even gets started in the Corn Belt. Speaking of planting, USDA's planting intentions figures were neutral for corn and wheat, coming in right in line with pre-report expectations, while soybean planting intentions were 1.4 million acres shy of the average pre-report guess.

The long and short of it: Old-crop corn futures must now try to find a level that restarts demand. Until then, the market is at risk of additional selling pressure, especially since key support has been violated.

* Winter wheat crop ratings resume. USDA will resume its weekly crop condition ratings for winter wheat this afternoon. While late-winter precip across the Plains helped improve HRW crop conditions in some areas, crop ratings will come in well under year-ago -- a reminder of the rough start the crop endured and the need for timely spring rains. Meanwhile, SRW crop ratings are expected to be strong as the crop got off to a good start last fall and picked up favorable precip over winter.

The long and short of it: Unless USDA's HRW crop ratings are shockingly low, don't expect a sharp market reaction.

* H&P Report neutral/slightly negative. USDA's Quarterly Hogs & Pigs Report last Thursday afternoon confirmed mild expansion of the U.S. hog herd and showed most categories close to the average pre-report guesses. But the "misses" were on the top side of the pre-report guess ranges, giving the data a mildly negative tone. Market hog inventories signal slaughter should run roughly 1% above year-ago through spring and summer. Given a record supply of pork in storage at the end of February, the onus is on demand to chew through the excess supplies.

The long and short of it: The report is slightly negative for deferred lean hog futures, but shouldn't spark sharp selling pressure.


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