Traders Focused Primarily On Corn Friday

May 9, 2013 01:23 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are fractionally lower in most contracts, soybeans are 1 to 4 cents higher and wheat futures are mixed at all three exchanges. A choppy start is anticipated this morning as traders even positions ahead of Friday's USDA reports. Cattle futures are expected to open steady to firmer on short-covering, while hogs are called mixed.


* Corn the focus on Friday. USDA will give us its first "official" look at the 2013-14 balance sheets Friday, with corn as the focal point. History says USDA will lop off around 2 bu. per acre from its corn yield due to the very slow planting pace, which should put the national-average yield around 161 bu. per acre (USDA used a yield of 163.6 bu. per acre at its Outlook Forum in late February). But such a strong rebound in yield and near-steady acreage (Prospective Plantings Report signaled a 100,000-acre increase) would project a record crop and a sharp increase in carryover. The average trade guess from a Dow Jones newswire survey puts 2013-14 corn ending stocks at 1.973 billion bushels. But if you throw the lowest guess of 1.387 billion bu., which I consider much too low out, the average guess would be 2.003 billion bushels.

The long and short of it: A new-crop corn carryover projection over 2 billion bu. would be bearish, though some of that is already built into new-crop futures. Still, a more than doubling of carryover from 2012-13 would act as a wet blanket on the market. It would likely take a carryover projection around 1.6 billion bu. to get a strong bullish response.

* Bean carryover could also double. USDA used a 44.5-bu-per-acre yield in its Outlook Forum and they may not deviate from that yet due to slow plantings as planting date isn't as important to soybeans as to corn. Acreage should be down 100,000 from year-ago based on the Prospective Plantings Report. That would project a crop just shy of 3.4 billion bushels. As a result, USDA is expected to show new-crop soybean carryover at 239 billion bu., based on the average trade guess. That would be a near doubling of ending stocks from the current marketing year.

The long and short of it: It would likely take a new-crop soybean carryover figure of less than 220 million bu. to be considered friendly. And even then, buying interest would be short-lived as it would still be a sharp rise from the current marketing year.

* China, we have a potential problem. China's consumer prices rose more than expected last month, with the consumer price index (CPI) coming in 2.4% above year-ago compared to expectations for a 2.3% rise and a 2.1% increase in March. Food prices rose 4%, up from a 2.7% increase in March, while non-food prices firmed 1.6%. Meanwhile, the producer price index (PPI) declined by 2.6% last month after a 1.6% decline in March. This marked the 14th straight month in which the PPI declined compared to year-ago.

The long and short of it: With inflation increasing amid a slowing economy, China's government and central bank are in a tight spot. Under these conditions, there isn't a whole lot they can do with interest rates of bank reserve requirements for risk of causing economic activity to slow even more or inflation to increase.


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