Shockwaves from Friday's USDA Production Report

06:11PM Oct 08, 2010
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Friday’s USDA Crop Production Report sent shockwaves through the commodity markets as corn, soybeans and wheat all closed limit higher. The aftershocks will be felt for some time to come. Some good. Some bad. What’s good and what’s bad will likely depend on your business position.

Chip Flory, Pro Farmer editor, says "The market was talking about lower yields, but I don’t think anyone was thinking about this thing coming in at 155.8 bu./acre. We’re to the point where we’re going to have to see some rationing in this market."

Perhaps Thomas Grisafi’s take on it could mean bigger things not only for agriculture, but for the economy as a whole. "The USDA sent shockwaves throughout the market like we’ve never seen. Not only does this affect the futures markets, the shockwaves sent through ag stocks…right after this number came out, the ag stocks exploded.

"This isn’t we’re going to be for a week. This isn’t we’re going to be busy for a month. This event could single handedly could help pull us out of the recession."

While it may sound like a bold prediction to say it will pull the country out of the recession, this report could lead to inflation. That is something the Federal Reserve has wished for some time, says Grisafi, an independent trader with Indiana Grain Co. He feels this could be the precursor to higher interest rates, and the catapult the financial markets need to get more flowing into the financial system.

As for Friday’s report, Flory says the market were set up for a big move after the big move to the downside after the quarterly grain stocks report. "A lot of the guys were out of the market and now they’re trying to get back in. "

They appear to want to stay there, as well. The most impressive result of today’s trading was that corn opened the 30-cent limit higher at the open and didn’t budge throughout the trading day. Early indications from synthetic trades on corn are showing that corn has another 35 cents upside potential on it, Flory says.

Grisafi says early bids show limit higher when electronic trading resumes on Sunday night, with expanded limits. "I’m not saying it will open there, but we are $5.73 ¼/bu. bid. That’s a lot different than the close we had last Friday.  

The question now comes to how high can prices go? Is $6 corn just around the corner?

"I don’t want to call it a forgone conclusion," Flory says, "but I think we’ve definitely got the potential to get there. When you look at the Hogs and Pigs Report it was suggesting we were going to see some expansion back in that industry. When you look at $5.50/bu. corn for those spring and summer months, it’s going to be awfully hard to keep those expansion plans in place.

"I think we’ll probably turn that around and get a little contraction going in hogs. That will be the first sign that we’re seeing some rationing on the feed side. A lot of big changes are coming for this market, but it’s going to be a fun ride for sure."