Pre-Report Comments

Published on: 16:01PM Sep 29, 2011

After trading sharply lower overnight, grains managed to have a strong comeback, with wheat leading the way. December corn finished 1¾ cents higher at $6.32½, November soybeans finished 6½ cents higher at $12.30 and December wheat 15½ cents higher at $6.54¼.

The USDA quarterly stocks report will be released tomorrow at 7:30 a.m. This is obviously a highly anticipated report and can be a major market mover. Initially we thought this report would be slightly bearish, but with the market trading almost $1.50 off its highs for corn and $2.35 off its highs for soybeans, there has already been a major adjustment.

For corn, it has been questioned whether the Sept. 30 report includes new bushels that were harvested early and shouldn’t be included in the ending carryout. On the actual survey, they have requested new versus old supply and should clear up the confusion. Plus there was not a whole lot of corn harvested early and it wouldn’t likely be an issue this year anyway.

Another reason we have been talking about a higher ending carryout (higher than other analysts) was partly due to the conversion ratio USDA has been using for ethanol. USDA has been estimating bushels used based on a 2.74 conversion factor when the industry standard is closer to 2.85, leaving a potential for another 100-plus million LESS bushels used for ethanol production.

We have had lower feed margins due to the increased cost of feed, but by the same token more was expected to be put on feed from the inability to graze after a drought in the South. Many were estimating China to come through with large orders for corn imports as well. This never happened despite rumors of major Chinese sales every other day this summer.

So with all these factors combined, the report looked like it could be rather bearish, but again to my point: We are $1.50 off the highs.

For soybeans, the average carryout estimate is 225 million bushels. Of course, this would be a tight stocks-to-usage ratio of 6.9%, but the world has had options for soybeans after South America produced a record crop last year. With many good bean yields being reported so far in the U.S., the market has been less concerned about how much we will be able to "carry in" as long as we have a decent crop this year to make up for it.

Tomorrow we will have an extensive writeup on the stocks report and our outlook, which is reserved for EHedger customers. If you would like to receive this, please feel free to sign up for our complimentary trial by clicking on the link below.

Best Regards,



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