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January USDA Reports Short on Bullish Market News

Monday, February 1, 2010
filed under: Marketing/Risk Management

By Mike Krueger

The January series of USDA reports dealt a very unkind hand to grain and oilseed markets, and prices suffered a major collapse following the reports.

The biggest bearish surprise was that USDA increased the corn yield and the number of harvested acres from the November report. Much of the trade was looking for lower yields and reduced harvested acres, based on the light test weight issues across much of the northern half of the Corn Belt — and the fact there is still a significant amount of corn not harvested. Instead of a reduction in corn ending supplies, USDA increased corn ending supplies, and the corn market was locked down the 30-cent limit the day of the report. USDA stated it will re-survey producers who still had unharvested corn prior to the January report; but don’t expect any significant changes in the corn numbers.

USDA also increased the soybean yield, but that increase was partially offset by increases in the crushing and export forecasts. The result was a 10-million-bushel reduction in soybean ending supplies — but even that was not as great a reduction as expected. Soybeans did not trade down the 70-cent limit the day of the report, but did lower more than a dollar a bushel in the week after the report’s release.

There was one bullish aspect of the January reports. The winter wheat planting estimate came in 6.3 million acres below last year. Most analysts were looking for a three- to four-million-acre reduction in winter wheat plantings.

The smaller wheat acreage estimate did not save the wheat market from collapse. In fact, the smaller wheat acreage estimate was actually also viewed as bearish to corn and oilseeds because it means there will be more acres available to plant to those crops on this spring.

USDA also increased the soybean production forecast for Brazil by more than 70 million bushels from the December estimate, while leaving Argentina’s production unchanged. South American soybean production will set a new record in 2010 by a wide margin, barring unforeseen weather developments that cut into yields.

So, in the end, there was really nothing positive to soybean, corn or wheat prices in these reports.

USDA also released its “final” production estimate for the 2009 U.S. sunflower crop in the January reports.

As expected, yields were very good, with the overall average pegged at 1,554 lbs/ac. That compares to 1,429 in 2008 and 1,426 in 2007.

Total sunflower production was just over 3.0 billion pounds, compared to 3.4 billion in 2008. The better yield resulted in just a 12% drop in production after planted acres were down by nearly 20%. Oil sunflower output was down 13% from 2008.

The smaller U.S. sunflower crop goes hand-in-hand with the smaller world sunflower crop. Argentina, for example, harvested its smallest sunflower crop in 27 years. As I pointed out in the January issue of The Sunflower, the world sunflower situation is tight because of the much smaller world crop. Oil sunflower prices lost ground following the bearish USDA reports, but the losses were far less severe than those of corn, soybeans or wheat. While soybeans dropped more than a dollar a bushel in a week, sunflower prices lost “only” 50 to 60 cents/cwt.

The other “outside” market forces are still at work. The dollar gained ground steadily in January on better economic news in the U.S. and signals from the Chinese government that they may take action to slow their hectic growth rate by restricting borrowing and increasing interest rates. The stronger dollar also played into the hand of the weaker commodity markets.

There was a notable political happening that also might have contributed to the dollar’s rise. The special Senate election in Massachusetts was won by a Republican, and that could affect the health care debate.

The anticipated flow of investment money into commodities in January really didn’t materialize, or was crushed by the selling inspired by the bearish USDA report. That inflow of money might still happen.

Mike Krueger is owner of The Money Farm, a grain marketing consulting firm. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no liability for its use.

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