Tuesday, October 5, 2010

USDA shocks markets again!

Grain markets were left reeling on Friday night after the USDA shocked the market by estimating corn stocks on hand more than 20% above expectations. Corn futures closed limit down on Friday night. This follows hot on the heels of the June report where the USDA reported stocks well below market expectations.

Remember the roughly 300 million bu. of corn stocks “lost” in the June Quarterly Grain Stocks Report? Well... apparently USDA was able to “find” those supplies. Sept. 1 corn stocks came in roughly 300 million bu. above the average pre-report trade guess and sets 2009-10 corn carryover at 1.708 billion bushels.

The market impact is that US corn stocks now move from being uncomfortably tight to a much more comfortable situation; 1.1 billion bu vs 1.4 billion bu. The tight corn stocks situation and the trend higher in corn values was underpinning the prices of other grains out of fear that too many acres would be lost to corn sowings unless the prices of other grains kept pace.

The best explanation many can offer is that the USDA’s counting has been thrown off by two unusual harvests in a row: the first when the harvest was wet and late, with poor quality, the second where the harvest is very early. Analysts think that some of this year’s early harvest has been counted (despite the USDA being adamant that no new crop stocks have been taken into account).

It will be very interesting to see which way the USDA jump in this week’s global S&D report. Most had been preparing for a bullish report, given that US corn yields continue to disappoint. But last week’s stocks report has thrown a spanner in the works.

Without support from corn, and with good late season rains falling across eastern Europe wheat futures followed corn lower. Canola also suffered heavy losses on the advancing harvest and increased farmer selling (of canola and US soybeans) and on a change in the weather pattern across Sth America. But with long-tern weather forecasts calling for lower than normal rainfall across the south American continent this summer, expect to here more talk about sth America in coming months.

The latest move lower could be a good opportunity for growers to close out hedges

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