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Will Today’s Reports Lift or Fizzle Prices?

00:05AM Jan 10, 2014
USDA flying money

Market experts weigh in on potential surprises and market reaction.

Today at 11 a.m. USDA will release the following major crop reports: Annual Crop Production, Grain Stocks, Winter Wheat Seedings, and World Agricultural Supply and Demand Estimates (WASDE).

"With four major reports being released, it’s really going to be a ‘Grain Grand Slam’," says Greg Wagner, president of GWX Ag Advisors.

Which Report Will Steal the Show?

Wagner says the Grain Stocks report, in particular for corn, will likely grab headlines. He’s keeping his eye on the feed and residual offtake. "The sharp recovery in exports is known and the trade has a good handle on food, seed and industrial use," he says. "But the well-known unknown is the ‘slush’ category of feed and residual that could provide fireworks."

Dustin Johnson, a broker with EHedger, agrees that all eyes will be on corn stocks. "I think today’s report could result in a bearish market reaction for corn unless we see a substantial reduction in stocks from the 10.8 billion expected," he says. "This report is especially important because it is the first stocks count to confirm the large 2013 crop."

A bearish tone for corn is also predicted by Cody Bills of Grain Hedge. For soybeans, he thinks the market reaction will be neutral.

Bills, like many in the trade, thinks USDA will need to raise the national average corn yield by half a bushel per acre or more per acre. "A yield revision of this size would push 2013/14 ending stocks 75 – 100 million bushels higher and continue to pressure corn futures," he says.

As a whole, Johnson says, producers are holding onto a substantial amount of unpriced corn. "As input bills come due we will likely see bushels come to market and the influx of supply weigh on prices," he says. "The market should have already accounted for this but may be waiting to get past the stocks report before they continue to sell at new contract lows just in-case there is a bullish surprise."

Will Soybean Prices Shoot Up?

For soybeans, Johnson says, there is a lot less cushion for swings in the national average yield. "While South America is expecting a record crop this year, we are still looking at extremely tight carryout estimates in the U.S.," he says. "This could simply mean the price sensitivity to the report will be a lot higher for soybeans than it is corn."

Yet, March soybean volatility is running low in the days leading up to the report. "This is probably the biggest wildcard, the misprice of volatility for such a monumental report," Johnson says. "We have seen large bushel swings in prior stocks reports, which can be best attributed to the amount of grain in transit during the time of the count."

The soybean situation has two blinking red lights that may ultimately cancel one another out, Wagner says. These two factors are a record soybean sales and shipment pace and a record large soybean crop in the making in South America.

"U.S. soybean shipments totaled a record large 661 million bushels in the September to November period and export commitments already exceed USDA’s forecast," he says. "Overlooked is the fact that the U.S. has imported nearly 12 million bushels during the same period."

He says USDA presently forecasts 25 million bushels of soybean import for the entire marketing year, and the available data reflects the U.S. is near the half-way mark for imports during the first quarter of the marketing year.

Wagner is expecting to see some fireworks after the reports release, but not long-term effects. "Collectively, it is unlikely that the reports will provide an impetus to counteract the negative price bias that is in place in the corn, soy, or wheat markets," he says. "The bottom line is that these reports are going to set the tone of the market going forward."


For More Information
Check current prices in AgWeb's Market Center.

Read more Pre-Report Analysis of Jan. 10 Reports.