Agriculture.com values your opinion
Would you be willing to answer a brief 4-question survey? Your feedback will help us improve your mobile website experience!
In its monthly Crop Production report released Friday morning, USDA moved 2012 corn production up slightly and bumped soybean production by 4%. Both are lower than 2011, but the higher crop sizes are expected to have a bearish effect on grain futures.
In its monthly World Agricultural Supply and Demand Estimates report, also released Friday, USDA raised U.S. wheat ending stocks by 50 million bushels, corn ending stocks by 28 million bushels and soybean ending stocks by 10 million bushels.
- Chat the numbers in Marketing Talk
- Read more: Reports seen as bearish
- See the full USDA Crop Production report
- See more from Friday's WASDE report
The numbers are bearish for prices Friday and into the near future, traders say. That's because Friday's numbers added breathing room to markets that were previously in a tightening supply situation. Larger crops and larger ending stocks add up to a bearish jolt, but at least for soybeans, the big question will be "for how long?"
"The government raised China's soybean imports, so they're saying China is very much alive," says U.S. Commodities grain broker and analyst Don Roose. "When you look at this report, our cushion continues to grow on soybeans. We had much bigger production than we thought around mid-summer. It really is a tribute to the spotty light rains and tells you what we can grow in adverse conditions."
So, both crop size and export demand are seen rising, 2 factors that ordinarily would more or less cancel out one another. Friday's data doesn't send the script too far from that scenario, but there's still a bearish tint to the post-USDA report glasses.
"What we're saying is this market is still rangebound, but keeps moving lower," Roose says. "We're in a seasonal slump. The farmer here in the U.S. is boxed in to holding supply. These will be drifting markets, we think."
So, how long does the market stay focused on these types of factors instead of the larger macroeconomic issues happening in the U.S., namely the "fiscal cliff," or expiration of tax breaks slated for the end of the calendar year? Looking ahead, that window will open later this month, says grain market analyst and Successful Farming magazine columnist Al Kluis of Kluis Commodities.
"The fiscal cliff becomes a potentially negative factor throughout the month of December. I think cooler heads will prevail. As we get into late November, December, if there's no sense of compromise in Washington, it becomes increasingly negative by the end of the year," Kluis says. "By January, we'll be trading final production numbers and we'll be very sensitive to any weather problems in South America."
These South American weather issues will likely get the soybean bulls back on track, if not before then, by early next year, adds AgTraderTalk.com market analyst and broker Kevin Penner. Despite recent speculation some trading partners may be slowing their demand for U.S. soybeans, the pace will likely remain brisk.
"The trade was looking for an increase in bean yield, but 39.3 [bushels/acre] probably surprised a few players. I’m surprised by the recent weakness in beans but still believe that they will be able to rally after the first of the year," Penner says. "We’ve been hearing conflicting reports about the demand for beans from China but most recent news points to not much of a slowdown in their bean demand, if any."
The soybean production numbers also came as quite a surprise to many farmers. "Evidently somebody got rain somewhere," says Agriculture.com Marketing Talk senior contributor highyields.
"A lot of good beans, some very good in the eastern Corn Belt," adds Marketing Talk advisor hardnox604008. "Rain flipped mid-summer -- the driest areas had been in the east and got rain while the western areas dried out further."
What about corn pricing moving forward? Just like the soybean complex, look for corn direction to hinge mostly on how the weather unfolds in South America, especially in those areas where there's been the most stress so far.
"I think corn is too expensive at these prices," Penner says. "If planting can get completed in Argentina and we see a more normal weather pattern return down there we should see old crop futures work below the $7 price level."