Monday, October 11, 2010

USDA shocks markets again!

No, we didn’t forget to change the title of this week’s article. On Friday night the USDA continued it recent track record of sending shock waves through the market by slashing US corn yields well below market expectations. The market had barley recovered from the USDA finding a heap of corn stocks a week ago before its latest report foreshadowed that corn stocks would tighten much further than expectations.

This sent markets all limit-up last Friday night meaning that corn prices have traded in a range of 15% in the past week….wow….and this may be only the start. Wheat and soybean prices were also sent skywards on the news. Wheat prices spiraled higher to ensure wheat is kept out of feeding rations, while soybean prices moved higher to ensure they capture their fair share of Sth America plantings.

So what was the commotion? The USDA slashed US average corn yields by 5.4% from September. That’s the biggest September-to-October yield decline since1974! Since then, USDA has estimated lower-than-month-earlier corn yields in September and October just three times: 1993, 1995 and 2000. In each of those years, corn yields continued to trend lower: Down 8.7% from October in 1993; down 2.7% in 1995; and down 1.8% from October in 2000. The best-case scenario (down “just” 1.8% to the final) points the 2010 corn yield to 153bu/ac.

As a result, USDA’s projected ending stocks to use down to just 6.7%, the second lowest in history and down from a comfortable 13.1% last year and 13.9% the previous year. World coarse grain ending stocks were revised down to 14.5% stocks/usage - the second tightest set-up since 1973.

Friday’s report fired the first shots in the upcoming battle for plantings in the coming year. Corn, wheat and high protein wheat stocks have all tightened considerably in the past year and neither grain can afford to forfeit ground to the other.

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