USDA’s unexpected sharp reductions in projected U.S. corn and wheat ending stocks sent wheat prices substantially higher and corn futures climbing as well.
"USDA threw some curve balls in this report," says Jack Scoville of the Price Futures Group, Chicago. "Most of the trade was expecting a pretty neutral report." Scoville was a post-report commentator on an MGEX press call.
Looking at corn first, USDA cut its estimate for U.S. corn ending stocks to 1.481 billion bushels, well below the average trade estimate of 1.619 billion bushels. The trade was expecting USDA to increase corn exports and decrease ending stocks, but the magnitude of the change was a surprise, says Scoville.
"It was a friendly report for corn, but at the end of the day, we are looking at adequate supplies," says Scoville. "The corn market reacted in a rather blasé way."
Scoville thinks that the post-report bump in corn prices, however, will be enough to spur heavy producer selling at prices between $4.50 and $4.60 per bushel.
Wheat Hits Bottom
USDA lowered its estimate for U.S. wheat carryout to 558 million bushels, well below the average trade guess of 603 million bushels.
USDA also lowered its estimate for world wheat production to 711.89 million metric tons, down from 712.66 million in January. World ending stocks are now estimated at 183.73 million metric tons, down from 185.4 million last month.
"A reduction in world production and ending stocks is friendly to the wheat market," says Scoville. "Maybe we are seeing a low in the wheat market."
Soybean Exports and Supply Higher
The soybean carryout was higher than expected at 150 million bushels, unchanged from last month’s report and 7 million bushels more than the average trade estimate.
Unchanged ending stocks for soybeans will spark selling, says Scoville, adding that the report was bearish for soybeans despite robust exports. Even so, USDA increased the 2013-14 season-average soybean price range to $11.95 to $13.45, up 20 cents on both ends of the range.
USDA increased projected U.S. soybean supplies by 5 million bushels to 3.46 billion on higher projected imports, mainly from Canada. Soybean exports for 2013-14 are projected at 1.51 billion bushels, up 15 million from last month, and reflective of the record pace of shipments and sales through January.
"All in all, the soybean supply and demand has nothing to help the bulls," Scoville notes.
Southern Hemisphere Gears Up
USDA lowered Argentina’s estimated corn production by 1 million tons due to continued dryness but left Brazilian output unchanged at 70 million metric tons. Production was also lowered in Russia, down 0.3 million tons.
Partly offsetting the reductions was a 900,000-ton increase in Ukrainian corn output. The 2013-14 production estimates for both Russia and Ukraine are record highs.
USDA raised its estimate for soybean production in Brazil but lowered output it in Argentina. The February estimate for production in Brazil is 90 million metric tons, up 1 million metric tons. The latest estimate for Argentina is 54 million metric tons, down 5 million metric tons.
As the South American harvest gets under way over the next few weeks, Scoville expects soybean prices to be weighted down under "cascade selling."