USDA's Corn Crop 'Surprise'

August 12, 2008 07:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

USDA surprises market with corn crop estimate... USDA pegged the U.S. corn crop at 12.288 billion bu. yesterday, the combination of an increase in harvest acres AND a 6.6 bu. per acre boost in the national average yield from the July projection. Yes, it's surprising to see both acreage and yield figures climb. If USDA would have lowered their harvested acreage estimate, then it wouldn't have been as much of a surprise to see them raise their yield estimate -- since the more productive ground would be harvested. But a higher acreage and yield estimate means there is a much better chance that one of these figures (or both) will be adjusted in coming reports.

After a gap lower open, corn futures began to find buyer interest around midday. There was some talk in the market about the possibility of this being the largest crop estimate of the year due to the delayed maturity of the crop.

December corn posted a bullish reversal, but needs to see strong spillover support this week to signal a near-term low has been posted. Just as corn posted a high in late June as the market had all the bullishness factored in, the market will bottom when things are as bearish as they can get. Time will tell.

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Opening calls. These calls originate more than three hours before the open -- use caution, things change::

Corn: 1 to 2 cents higher. Futures were firmer overnight on light spillover from yesterday's gains. After a gap lower open, corn futures posted bullish reversals and closed higher. Early pressure came from USDA's reports, as they raised the size of the corn crop more than expected to 12.288 billion bushels. But around midday, short-covering began to enter the market, as well as talk about the possibility of this being the largest crop estimate of the year due to the delayed maturity of the crop.

Soybeans: 3 to 6 cents higher. Futures were firmer overnight on spillover from yesterday's gains and strength in the crude oil market overnight. Futures closed higher yesterday, supported by USDA's smaller-than-expected crop estimate. The big picture for soybeans got a little more bullish as USDA lowered its 2008-09 soybean carryover projection to 135 million bu. -- steady with the 2007-08 estimate. So... even with the sharp rise in soybean acreage this year, ending stocks are expected to hold steady and remain razor-thin through the upcoming marketing year.

Wheat: 4 to 5 cents higher. Futures were firmer overnight on spillover from neighboring pits. Chicago wheat closed weaker yesterday while K.C. and Minneapolis finished mostly firmer. USDA's wheat production estimate came in just slightly larger than the average trade guess, while the ending stocks estimate was bigger than expected. Traders anticipated a slight drop in wheat carryover, while USDA delivered a 37-million-bu. increase. But USDA's August crop data was generally ignored by traders. The big picture shows comfortable wheat stocks through the 2008-09 marketing year after tight stocks in 2007-08.

Cash cattle expectations: Steady to $1 higher. The beef market continues to strength, which has traders generally expecting steady to $1 higher cash trade with last week's $99 to $100 trade. There are no signals of beef demand slowing down quite yet, especially as retailers prepare for Labor Day features. But that could change next week if they feel holiday buys are adequate.

Futures call: Mixed. Futures are called to open mixed amid spreading, but could see spillover support from yesterday's gains. Late-session support in the cattle market came from continued strength in the beef market. October live cattle posted an upside day of trade on the charts. Resistance lies at last week's high of $109.10 and support is at last week's low of $106.40.

Cash hog expectations: Steady to weaker. The cash hog market weakened yesterday as packers said they had adequate supplies booked. Cash sources report most packers are well bought ahead on slaughter needs and feel they will be able to secure plentiful near-term needs even with lower cash bids.

Hog futures: Weaker. Futures are called to open weaker based on spillover from yesterday's losses. Focus in the August contract is to narrow the premium with the cash index ahead of the Thursday, noon CST expiration. The sharp two-day drop in October lean hog futures has retraced more than 25% of the rally from the July 1 low. A 38% retracement would be at $74.80. More than a 38% retracement by the contract would strongly suggest an extended price slide is underway. Currently, price action is similar to the price break in late June that resulted in a $9.00 decline in six days.

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