The one statistic in the bunch of USDA reports released this week that we thought would be supportive, pulled the rug out from under our feet, and catapulted prices lower.
With a good portion of the USDA corn crop still sitting in the paddock and exposed to the elements the last thing markets were expecting was for the USDA to lift corn yields.
But that they did, for a new record crop of 13.2 billion bu (331mmt), up 2% from the Nov forecast. Average yields were estimated at 165.2 bu/ac – another new record – up 2.3 bu from the November estimate and 4.9 bu above the previous record of 160.3 bu/ac set in 2004. This topped the expectations of even the most bearish analyst.
The market reaction was unequivocal – a limit down move of 30US¢/bu (-7%) in CBOT corn futures – matched by similar falls across other major international grain futures markets.
It just keeps getting bigger...
After this initial shock, the following bearish market prognostatications slipped through to the keeper.The USDA again raised its 2009/10 global wheat, corn and soybean production estimates. Total estimated 2009/10 global grain production was increased by 10mmt to 2,050mmt and all-grain stocks were boosted by a similar amount to 466mt, lifting the stocks-to-use ratio to 21% – compared to 17% at the end of the 2007/08 season.
Where is it all?
Increased wheat production was mainly attributable to another revision higher in Russia’s wheat output for last season.
Larger global corn and bean crops were mainly the result of record large US production.
In the case of beans, this combined with a lift in the forecast size of the Sth American bean crop which is due for harvest next month.
Glut of wheat building
US wheat stocks for 2009/10 were raised another 4mmt to 195mmt on lower expected domestic use and exports.
Lower US wheat exports reflect a poor sales pace owing to strong foreign competition and overvalued US wheat prices. The current 2009/10 US wheat export projection would result in the lowest US wheat exports since 1971/72.
Lower US wheat plantings no saviour
The only positive to come from these reports was a savage 14% fall in US winter wheat plantings, making the 2010 US winter wheat plant the lowest since 1913 (almost 100 years).
With wheat stocks still rising, this had little market impact, with traders figuring that wheat can give up a few acres.
The downside though is that with less wheat having been planted this will make ground available to plant other crops. In the coming months – in the lead in to nth hemisphere spring plantings – this will become another supply variable that will likely dampen price upside in 2010/11.
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