Grains finished sharply lower ahead of the report with double digit losses for corn, beans, and wheat.
The first thing that set the market on edge was the overly dismal weekly corn sales of only 130,000 MTs (old crop) and 27,000 MTs (new crop). We did see a USDA sale announcement 120,000 MTs of US corn to China for 11/12 and then another 120,000 MTs of new crop to "unknown" for 12/13. These sales obviously didn’t seem to do much for the bulls though as we saw trader liquidation ahead of tomorrow’s reports. This is now the lowest level we have seen December 12 corn futures since March of last year.
Even with today’s washout the soybeans still gained on corn (relatively speaking). The corn-soybean ratio is at the high for the move just as we are heading into this report. If you look at the chart below, you will see we are now trading at 2.49 to 1, suggesting the incentive for soybean planting for many areas. Obviously this late in the year we aren’t likely to see a massive switch but 1-2 million acres is certainly possible.
Chart – November 2012 Soybeans Divided by December 2012 Corn
The market is pricing in the potential to see higher corn stocks and high corn acres. I have pointed out in recent grain letters that the last three quarterly stocks reports have resulted in "limit-down" moves in corn. How many acres has the market accounted for and how many stocks? I have included the average estimates in the chart below. Anything above 95.5 million corn acres and 76 million bean acres looks negative to me, especially with this recent downward momentum we have seen. Overall I believe we could ultimately see a combined acreage of 172 million between corn and soybeans.
ESTIMATES FOR USDA REPORTS:
Tomorrow’s report is still anyone’s guess as to what the USDA actually releases. If we get a bearish report, we can start to look for re-ownership strategies on a large break. If we get a bullish report, we still have plenty of room to sell at higher levels. If you would like to see the current EHedger recommendations, please sign up for a free trial of our research using the link below. Thanks and good luck on tomorrow’s report.
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