Suprises More Likely To Be Bearish Than Bullish In January USDA Reports

January 9, 2014 11:58 PM

What Traders are Talking About:

Overnight highlights: As of 5:45 a.m. CT, corn futures are trading 1 to 3 cents lower, soybeans are fractionally to 3 cents higher and wheat futures are narrowly mixed. Price action will be light until USDA's reports are released at 11 a.m. CT. Because of the importance and amount of data that will be released at that time, the final 2-plus hours of trade today could have some fireworks. Cattle futures are expected to be choppy this morning as traders wait on cash cattle trade. Lean hog futures are expected to open higher amid short-covering.


* USDA report day. USDA will release a barrage of report data that will shape at least near-term price direction and could well set the overall price tone into spring. In addition to its monthly Supply & Demand Report, USDA will release its Annual Crop Production Summary, Quarterly Grain Stocks Report and Winter Wheat Seedings Report at 11:00 a.m. CT. Traders are widely anticipating a slight increase in the 2013 corn and soybean crop estimates, which is expected to lead to slightly higher 2013-14 carryover projections for both. The wild card in the data is Dec. 1 stocks, especially corn stocks, as this is the figure traders have consistently missed by a wide margin. Based on the pre-report guesses, traders are anticipating record or near record corn and soybean use to be implied for the first quarter of 2013-14. Meanwhile, winter wheat seedings are expected to be up around 600,000 acres from 2013.

The long and short of it: It would be a bullish surprise if USDA's final 2013 corn and soybean crop estimates don't increase, though I think that would provide temporary support. On grain stocks, I think there's a real risk the implied first-quarter use for corn and beans won't be as big as anticipated, which could go right to the bottom line and push carryover up more than expected. And finally, the average guesses for winter wheat seedings appear to be a little light. Bottom line: Odds are stronger for a bearish surprise than a bullish surprise in the report data, though markets have been beaten down heading into the reports.

* Record-large Chinese soybean imports. China imported 7.4 MMT of soybeans in December, according to official customs data, which was the highest monthly total ever. December soy imports surged 22.7% from November and 25.6% from year-ago. For all of 2013, China imported a record 63.38 MMT of soybeans, up 8.6% from year-ago. Chinese demand for soybeans is expected to grow this year as the country's appetite for soybean meal expands amid surging meat demand from consumers. Some private forecasters are forecasting even greater growth in Chinese soybean imports in 2014.

The long and short of it: Record Chinese soybean demand is "known." China will get a majority of its needs from the U.S., which is also "known." What isn't known is how many U.S. soybean purchases China currently has on the books will get canceled. That unknown is hanging over the market as traders expect "some" cancelations. How many U.S. soybean purchases China ends up canceling will depend on how quickly and timely Brazil can export its record crop.

* China's trade surplus narrows. China's trade surplus narrowed to $25.6 billion in December, which was well short of expectations of $32.2 billion as export growth slowed and imports rose more than expected. Chinese exports rose 4.3% over year-ago last month after a 12.7% surge in November. Chinese imports rose 8.3% last month, up from 5.3% growth in November. For all of 2013, exports were up 7.9% from 2012, while imports rose 7.3%. Total trade grew 7.6% in 2013, narrowly missing the official target of 8%.

The long and short of it: The narrowing of China's trade surplus is not a concern, though the slowed export growth bears watching as it signals reduced demand from the U.S. and EU, China's two largest customers. China's biggest "hurdle" in 2014 from a trade perspective is likely a rising yuan.


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