Trade Not Believing Lower Than Expected Yield
Aug 12, 2014
Initial Report Reaction:
Old Crop Corn:It is normal for the focus on this report to be all about new crop production. There were some old crop demand changes to discuss though. Corn for ethanol was raised by 45 million bushels and exports by 20. That is not out of bounds. Feed/residual was left unchanged. Ending stocks were lowered moderately from 1.246 billion to 1.181. This helped offset much of the new crop numbers.
New Crop Corn: USDA’s numbers would appear to be bullish but it is unlikely the market will trade it so. Yields were increased from 165.3 bpa to now 167.4. This was under all yield numbers submitted by the 26 analysts surveyed by newswires. Over the past 21 years USDA has increased yields on the August report 10 separate times. Today’s increase, of only 1.3%, is the third smallest increase of those 10 years. Yields are determined by four separate factors. You have the number of plants per acre, the number of ears on those plants, the number of kernels on those ears, and the weight/size of those kernels. This survey, and even the September one, is only a partial look at the crop due to the lack of mature plants. The only real surveys including kernels are in the far South. In the Cornbelt, the field checks are covering plant populations and ear checks. The real jewel of this year’s corn is the incredibly successful pollination. That won’t be reflected until the September or October reports. Corn production, of 14.032 billion, was under the 14.253 average guess but still an increase over USDA’s July 13.860. Even USDA’s low production is still a record. Ending stocks were increased only from 1.801 to 1.808.
World Numbers: Old crop ending stocks were lowered from last month’s 173.4 million tonnes to now 171.1. New crop was lowered from 188.1 mt to now 187.8.
Price Expectations: USDA lowered its estimate of the average marketing cash price from $4.00 to $3.90. Allendale suggests very clearly that today’s report was a small step of the process of supply determination. It is likely no one in the industry believes the crop is this small and will therefore not trade it. On the positive end today’s report could allow for a small rebound in prices this month.
Old Crop Soybeans: Minor changes to demand were made but there was no change in the final ending stock estimate of 140 million bushels. Exports were raised by 20 million bushels, domestic crush was left unchanged, and imports were lowered by 5. On the bearish end residual use was lowered by 25 million. Don’t forget that USDA will likely revise up the fall 2013 harvest on the September 30 Grain Stocks report. That will take the place of their odd looking -94 million bushels of "residual use" that is in the balance sheet. Final stocks will end in the 130 – 150 mb range, not a market mover.
New Crop Soybeans:USDA did confirm that big soybean stocks are right around the corner. Yields were raised a bump from 45.2 to 45.4 bpa. The trade was expecting a small increase to 45.6. Production was raised to 3.816 billion, near the 3.823 average guess. Ending stocks were raised from 415 to 430 million bushels with no changes in demand.
World Numbers: Old crop world stocks were lowered from 67.2 million tonnes to now 67. New crop was increased from 85.3 to now 85.6.
Price Expectations: USDA lowered their marketing year average cash price by 25 cents to now a $10.50 estimate. Note this is not a futures price or even a target. This is a "marketing year average". Much of that number assumes pre-harvest sales at higher prices.
New Crop Wheat: Production was raised by 38 million bushels today. The trade was expecting a 5 million increase in winter wheat and was surprised by the 30 million increase. Minor increases for "other spring" and durum filled the remainder. Including a 10 million increase for feed/residual they brought ending stocks up from 660 million last month to now 663. That was right on the average guess.
World Numbers: Along with a bigger US crop USDA also added 1.5 million tonnes to its EU crop estimate. New crop ending stocks were raised from 189.5 million tonnes to now 193.0.
Price Expectations: USDA lowered its marketing year average cash price from $6.60 to now $6.30.
For more information on pricing implications, give us a call at 800-262-7538, or visit us at www.Allendale-Inc.com