Thursday grains finished higher along with most commodities after the Fed Decision for more quantitative easing. December corn settled 4 ¼ cents higher at $7.73 ¾, November soybeans 1 ½ cents higher at $17.47 ¼, and December wheat 12 cents higher at $9.02.
Export sales were strong for corn and meal and in-line with estimates for the other products. Wheat was also supported from the fact that Egypt’s GASC bought a total of 235,000 MTs of wheat for late November sourced between Russia and France. Besides exports, the main market talk revolved around the reaction to the FOMC’s decision for QE3.
The Fed will now purchase $40 Billion of mortgage backed securities every month with NO defined end date. Operation Twist will continue through the end of this year. Furthermore, they extended their forward guidance to keep rates exceptionally low through mid 2015. What does this mean? The Fed is doing everything it can to keep rates low and pump liquidity. When you create a situation of excess dollars they become more abundant and worth less, thus requiring more of them to purchase hard assets like commodities. We saw a notable increase in the price of precious metals with gold trading $40+ an ounce higher on the day and silver $1.50+ an ounce higher. We also saw a notable increase in the grain markets as the dollar fell to new lows not seen since May. If the US Dollar Index continues to head lower, we may see an overall supportive tone continue in the commodity markets.
The biggest surprise to the market was the new crop corn yield of 122.8 with unchanged harvested acres (87.4 million). The average analyst estimate was 120.6 with 86.173 million acres. Naturally this resulted in a much higher US Corn Ending Stocks number at 733 million bushels (market estimate was 592 million).
Not only was the US corn carryout above expectations, the world carryout was another 3 million MTs more than the average guess. Even though these supply numbers are quite low, they were still above the expectations which is why we had a negative reaction on the report day. The EIA ethanol report was also a little "bearish" with lower production and higher stocks. Another aspect to consider is the negative technical formation December corn has right now.
Soybeans on the other hand obviously had a very positive reaction to the report. The report wasn’t overly bullish from carryout as much as it was for US production. The market was calling for yields to drop to 35.5 bpa and the USDA September estimate was 35.3. The average analyst estimate for total US production was 2.657 billion bushels and the USDA came in at 2.634 billion. The US Soybean data was slightly "bullish" while the World supply was a little more than the market had anticipated. The USDA left South American production unchanged (Argentina at 55 MMTs and Brazil at 81 MMTs).
The USDA wheat supply estimates were generally higher than the market’s expectations. The USDA did lower the Russian wheat crop by 4 MMTs but left the Australian and Canadian crops unchanged.
This report was not far-enough away from market expectations to create a large change of opinion going forward. The final stocks report for corn and soybeans may be the next major market mover at the end of the month.
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