Recapping USDA's January Reports

January 14, 2013 12:06 AM

What Traders are Talking About:

* Quarterly corn stocks surprise again. USDA reported Dec. 1 corn stocks at 8.03 billion bu., which was 180 million bu. lower than anticipated. That implies first quarter 2012-13 corn use was stronger than anticipated despite high prices. Because of poor crop quality, end-users may have been required to use more bushels to get the desired output. The stronger-than-expected first quarter corn use led to some significant changes in the supply/demand table. USDA raised its crop estimate 55 million bu. from last month, but more than offset that with a 100-million-bu. increase in use (feed and residual use was upped 300 million bu. and exports were cut 200 million bu.) to result in carryover tightening 45 million bu. to what I consider a too-tight 602 million bushels.

The long and short of it: USDA's report data very likely put in a short-term low for the corn market. Traders must now find a price that slows use and ensures there are more than 602 million bu. of corn left at the end of the 2012-13 marketing year as "pipeline" supplies are likely 750 million to 800 million bushels.

* Soybean use also strong. Implied soybean use in the first-quarter of the 2012-13 marketing year was an impressive 1.22 billion bu. -- a 30% increase in bean use over the same quarter last year. Despite the strong quarterly use, which was led by robust exports (primarily to China), USDA left its export projection unchanged. USDA did, however, increase its crush forecast and also its export projections for both soybean meal and soyoil. That suggests USDA sees China turning to imports of products more than raw soybeans until South American supplies are available. The increase in crush was more than offset by a 44-million-bu. increase in the crop size to push soybean ending stocks up 5 million bu. to 135 million bushels.

The long and short of it: At 135 million bu., projected ending stocks are tight, but the soybean market has experienced similar (or tighter) stocks situations in the recent past. Soybeans will need help from corn in putting in a short-term low.

* Wheat signaling a low. The wheat market was pressured hardest ahead of USDA's January reports, partly amid expectations winter wheat seedings would be up around 2 million acres from last year. But USDA reported winter wheat seedings increased only 500,000 acres. On top of that, Dec. 1 stocks came in lower than expected and the 2012-13 ending stocks forecast was cut 38 million bushels. USDA surprisingly increased its feed and residual projection despite a big increase in corn feed and residual use. That suggests livestock producers are still having to feed plenty of wheat to make up for the lower feed output from the poor quality corn crop.

The long and short of it: Technically, wheat futures are signaling a short-term low is in the works. But the export market must provide some help to turn the post-report rebound into more than a corrective bounce.


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