USDA Reports Review
Market Shrugs Off USDA Acreage, Quarterly Stocks Reports, Focuses on Weather Instead
Friday promised to be an interesting day given that it saw the release of USDA's Quarterly Stocks and Acreage reports; was the end of the week, month and quarter; marked the beginning of a normal-weather-market weekend for corn, soybeans and spring wheat; and marked the beginning of a harvest weekend for winter wheat. And out of all of those things, USDA's reports had the least effect on most of the markets.
Let's start with quarterly stocks. USDA pegged corn stocks on hand as of June 1 at 5.225 billion bushels, above the pre-report average estimate of 5.16 bb and above the 5.15 bb needed to keep corn on pace with USDA's June projected ending stocks figure of 2.295 bb. Therefore, the 5.225 bb could've been viewed as bearish, as it now projects an ending stocks figure of 2.387 bb. On top of that, the ending stocks-to-use ratio would increase from USDA's June calculation of 15.7% to 16.4%. Looking at the past 10 years of data, such an ending stocks-to-use percentage would put the average cash corn price for the 2016-2017 marketing year near $2.60. The DTN National Corn Index is expected to come in around $3.34 Friday evening, up about 11 cents.
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Wheat stocks as of June 1 -- or, in other words, 2016-2017 marketing-year ending stocks -- were pegged at 1.184 bb as compared to USDA's latest ending stocks projection of 1.161 bb. While not a large difference -- only 23 million bushels -- the ending stocks-to-use ratio climbed to an increasingly burdensome 53.4%, extending its highest number on record status. Yet Chicago wheat futures, the most heavily traded wheat futures market, closed limit (30-cents) higher for the day.
Soybeans actually saw a more bullish quarterly stocks figure of 963 mb, as compared to the average pre-report estimate of 981 mb and the 1.005 bb needed to stay on pace with USDA's current ending stocks projection of 450 mb. The actual June 1 stocks number, based on average fourth-quarter demand, projects ending stocks to be 402 mb, still not tight but not as burdensome as what USDA has been projecting since it began making guesses back in May 2016. Still, old-crop soybeans were able to close up 27 cents for the day.
If not quarterly stocks, maybe it was expected planted acres that sent markets ripping higher. In a rather mild surprise, USDA increased corn to 90.9 million acres while inching soybeans up to 89.5 ma. Heading into Friday's report, the general consensus seemed to be not whether soybean planted area would overtake corn for the first time since 1983, but by how much. There were hushed whispers of soybeans possibly shooting past the high-end of pre-report estimates at 91 ma, maybe coming in at an astronomical 92 ma. But it wasn't to be, at least not yet. Nevertheless, both new-crop December corn and November soybeans posted strong gains of 12 cents and 30 cents, respectively, to close out the week.
With the Fourth of July holiday nearing, the real fireworks continue to occur in wheat. Spring wheat, to be exact, as USDA lowered its planted area estimate to 10.9 ma. Throw in the continued hot, dry conditions across the U.S. Northern Plains and Canadian Prairies, and the Minneapolis spring wheat futures market should continue to be explosive. Weather forecasts are doing nothing to dampen the enthusiasm, literally, with weekend forecasts for parts of the Dakotas calling for temperatures to climb to a Phoenix, Arizona-like 110 degrees. It was this weather that continued to drive spring wheat higher and provided spillover support to the other grains.
When the dust had settled and the latest weekly CFTC Commitments of Traders report was released (position for the week ending Tuesday, June 27) it became more evident as to why grains saw such an explosive rally Friday. Recall that it was the end of the week, month and quarter, and grain traders had moved back to a net-short futures position (using the legacy, futures only data) in corn, increased their net-short futures position in soybeans, and continued to hold net-short futures in Chicago SRW wheat. Given that, it's possible Friday's report was as much about position-squaring as it was any fundamental factor. Whether or not that was actually the case could become apparent early next week.
Darin Newsom can be reached at darin.newsom@dtn.com
Follow Darin Newsom on Twitter @DarinNewsom
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