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| The grain and oilseed markets received a supportive tail wind overnight from good economic data released in China, Australia and Japan. The euro moved strongly higher, while the dollar again dropped, as investor appetite for risk increased. However, the big story for grains today was USDA's June crop report, in which USDA updated its domestic and global supply and demand data. USDA also released updated production data on this year's winter wheat crop.
The reports held a few surprises for traders on both sides of the aisle. The number that most stands out is a tighter corn balance sheet, but then again USDA did not adjust the corn yield upward to reflect current conditions. That's typical though in June, as USDA knows that high ratings early may be desired, but they often don't last into August. Overall, this morning's report was seen as bullish for corn and neutral for soybeans and wheat.
Corn prices found support from USDA pre-report positioning again on Wednesday, with added support from surging soybean prices. Yet, gains were limited by expectations that this morning's USDA crop report would refocus the trade on adequate domestic stocks for the year ahead.
This morning's USDA crop report should provide fundamental support for prices, particularly if we continue to see outside money flow support due to a weaker dollar and higher equity markets. USDA cut old-crop corn stocks to 1.603 billion bushels, down from 1.738 billion the previous month. New-crop stocks were also reduced to 1.573 billion bushels, down from 1.818 billion the previous month. Higher old- and new-crop ethanol demand accounted for much of the adjustment. USDA bumped its old-crop ethanol demand estimate by 100 million bushels and its new-crop estimate by 100 million. Also, USDA doesn't typically adjust its corn yield in the June report. As such, it left the yield at 163.5 bushels per acre, even though yield models currently projected it at 169 bushels based on high crop ratings.
However, the more supportive numbers for corn may be in the global balance sheet. USDA cut global stocks to just a 64.6-day supply, up just slightly from a 64.4-day supply the previous year. That ties it for the 5th tightest of the past 34 years. USDA did increase this year's China imports to 40 million bushels, based on recent purchases, but still assumes that those imports will dry up by this fall. Weekly export sales to all destinations this morning were decent at 40.1 million bushels, including another 5.6 million new-crop bushels sold.
Soybean prices surged out of the gate on Wednesday on reports of fresh demand from China. The world's largest importer took advantage of the recent price break to purchase 40,000 tons of old-crop soyoil and 8.8 million bushels of new-crop soybeans. Trade talk focused on dwindling supplies of soybeans in the country resulting in slower crush. That in turn is tightening soymeal supplies, leading to cancellations of deliverable supplies against the July contract. July soybeans surged to test overhead resistance at $9.50, but traders were reluctant to challenge the 100-day moving average on the daily continuation charts at $9.53 ahead of this morning's USDA crop report.
USDA made few changes to its domestic soybean balance sheet this morning, giving little fodder to either the bulls or the bears. Old-crop stocks dropped 5 million to 185 million bushels, while new-crop stocks fell by the same amount to 360 million bushels. USDA's June new-crop stocks estimate has been too high in 13 of the past 15 years, especially in each of the six previous years that it forecast ending stocks above 300 million bushels. It simply under-estimates demand and appears to be doing the same again this year.
Look for soybeans to follow the cash market, which reflects tight stocks at this point. However, it could come under some initial pressure as traders unwind corn/bean spreads on the more friendly corn data. Support should come from decent weekly export sales; totaling 15.5 million old-crop and 4.8 million new-crop bushels. | |
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Arlan Suderman
