The USDA reports sent corn prices sharply lower today. Corn was hit the hardest down "lock-limit" 40 cents in the front months. Wheat wasn’t far behind finishing 36 cents lower, and beans were only 20 ½ cents lower after coming off their lows by over 32 cents. Tomorrow the corn limits will be expanded to allow trade up to 60 cents.
Highlights from the report include higher corn stocks, higher corn production, higher world wheat carryout, and higher winter wheat acres in the US. We ended up with about 240 million bushels more in quarterly corn stocks than what the market was expecting and an average corn yield of 147.2 bpa. Synthetically the corn market was trading a few cents below the limit and should reflect that on the overnight trade.
So what do we expect going forward in 2012? Well there is a lot of year left and this is just the start. Typically the January report can have a lasting effect on the direction of the first quarter. This report loosens some of the dependence the world was requiring out of Argentina for corn, which has been a major reason for the rally in recent weeks. We aren’t necessarily out of supply trouble just yet. We are still down about 400 million bu corn on this report as opposed to this time last year. But… we are looking at a front-month wheat price that is almost $1.75 CHEAPER than it is today. The abundance and relatively cheap price of world wheat should continue to weigh on corn demand as long as the feed industry continues to have that option. Argentina is also still projected by the USDA to produce 3.50 Million MTs more corn than last year even with the recent weather problems.
So with all that said I do think that there is still quite a bit of risk for old crop corn especially. New crop corn could ultimately find support much sooner than old crop as it has to hold acres still. As far as soybeans go, we did see a small decline in expected world ending stocks on the report. Weakness in corn and wheat can still pull this market down, but for the most part the report was not nearly as bearish and this showed as the markets held more support in soybeans today. We also have to contend with weather in South America.
Link to Quarterly Stocks: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1079
Link to Supply and Demand: http://www.usda.gov/oce/commodity/wasde/
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