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Nov. USDA Reports

Sunday, December 1, 2013
filed under: Marketing/Risk Management

It seems like it has been an eternity since the USDA last issued a production and supply and demand estimate. The fact is that it has been an eternity. The October government shutdown resulted in the cancellation of the October reports. The timing of the shutdown was bad for the industry for two primary reasons:

• It came in the midst of the corn, soybean and sunflower harvest period when the market was looking for yield confirmation.

• It came during a growing season that saw a very wide range of weather conditions that also meant a very broad range of yield results.

The market had been expecting and trading much better corn yields and somewhat better soybean yields than were reflected in the September report for the past six weeks. The increased yield estimates were based on anecdotal reports from producers that yields were generally “better than expected.”

USDA did raise both the corn and soybean yields in their November report, but some of that yield increase was offset by reductions in harvested area and an increase in the demand estimates. The result was that soybean and corn ending supply estimates, although still large, did not increase to expected levels. In the case of soybeans, ending supplies will still remain tight.

The primary question now is whether corn and soybean markets have bottomed? Certainly the November USDA reports were more positive than expected. Farmers have been reluctant sellers throughout a better-than-expected harvest, and we suspect the lack of a really bearish report might give them confidence to hold tight for at least a few more months.

Demand, on the other hand, has been exceptionally strong. Now that a super-bearish November report didn’t develop, we would have to believe consumptive buyers who have been lingering in hopes of another downdraft in prices will start to increase coverage.

We should also point out that the November USDA reports were not bullish; they just weren’t as bearish as expected. While lows might have been established, it doesn’t mean prices can rally to any significant degree. The extent of rallies will depend on a number of factors, including:

• Weather in Brazil and Argentina between now and the end of March.

• Farmer selling patterns.

• Continuation of strong demand.

The USDA will not update any production estimates in the December series of reports. That update won’t happen until the so-called “final” production estimates are released in January, 2014.

One thing that did not happen because of the October government shutdown was that there were no production estimates released for either sunflower or canola. Those estimates typically are released in the October reports, and USDA chose not to release production estimates in November. This was likely a manpower issue within USDA because of the lost two weeks in October. Nonetheless, it does leave a significant time gap for any sunflower production estimate. All we can say at this time is, that like most crops, producers have reported better-than-expected sunflower yields.

USDA did, however, update their sunflower planting estimates. Those estimates put total sunflower acres planted in 2013 at 1.578 million. That is up less than one percent from the June numbers and would be the second lowest planted area to sunflower since back in 1976.

World vegetable oil markets remain weak from a relative standpoint, and that is unlikely to change any time soon. The last market issue to create weakness in oils was the decision by the U.S. government to move toward a total ban on oils that contain saturated fats in all processed foods. Just the headlines from that create weakness in oil vegetable oil markets.

---Mike Krueger

* Mike Krueger is owner of The Money Farm, a Fargo, N.D.-based 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 responsibility for its use.

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