Market retreat continues

Wheat: USDA report friendly

Wheat lost ground last week. The winter wheat exchanges traded higher for most of last week but one bad session will force them to leave with small losses while Minneapolis lost ground in every session. For the week ending May 10, July Minneapolis dropped 16.75 cents, September Minneapolis was off 13.75 cents, July Chicago was off 8.25 cents and July Kansas City dropped 9.5 cents.

Wheat started last week lower and extended session losses early. Most of the selling was tied to pressure from the other grains contracts (both corn and soybeans were sharply lower). Statistics Canada estimated Canada's wheat stocks to be tighter than expected. Wheat stocks are estimated at 14.48 million metric tons compared with 15.8 million metric tons for last year at this time. Technically wheat did not perform well, trading to contract lows. Buying did step in at those lows and wheat hit enough buy stops to bounce higher. This buying spilled over to the May 8 session.

Wheat opened and traded lower May 9 due to position squaring ahead of the U.S. Department of Agriculture crop production report. Wheat was also pressured by spillover selling from a higher U.S. dollar. The U.S. dollar traded half a cent higher May 11 with its strength coming from European Union concerns. Report day had wheat mixed. The report was friendly to wheat as USDA estimated both 2011 and 2012 ending stocks lower than expected. USDA estimated the 2011 wheat ending stocks at 768 million bushels, 13 million bushels less than the average trade guess. The 2012 ending stocks estimate was 735 million bushels, which was 70 million bushels less than the average trade estimate. World ending stocks were also lower than expected, coming in at 197.03 million metric tons compared with last month's estimate of 206.27 million metric tons. USDA estimated all wheat production at 2.245 billion bushels, slightly more than expected by the trade (2.196 billion bushels). This was offset by a slightly higher-than-expected export sales estimate of 1.15 billion bushels. The report was friendly to wheat, but that was overshadowed by a bearish estimate for corn. The weaker corn market spilled over to limit gains in wheat.

Corn: bearish USDA report

The corn market traded lower last week, with the July contract down 32 cents and December was down 16 cents on the May 10 close. Traders were waiting for the May 10 report to see what USDA would do with old- and new-crop corn numbers. The report was bearish.

Corn was under pressure the first three days of the week. Pressure was caused by the rapid planting pace, ideal weather and traders positioning ahead of the May 10 USDA supply and demand report. Planting progress jumped 18 percent for the week ending May 6 to 71 percent of the crop planted and one of the fastest planted crop years in history. For the May 10 report, traders were expecting to see a reduction of 50 million bushels in old-crop stocks with an increase in exports and feed usage. For the 2012 to 2013 season, traders estimated ending stocks to double with an increase in acreage and above trend line yield production. World ending stocks for the 2011 to 2012 season were also expected to shrink. The futures also ended sharply lower on May 9 with aggressive long liquidation before the report.

The USDA report was not friendly for the corn market on May 10 and closed sharply lower. USDA estimated ending stocks for the 2011 to 2012 season at 851 million bushels, which was up 50 million bushels from last month and up 100 million bushels higher than trade expectations. Feed usage was adjusted down by 50 million bushels and other usage numbers were left unchanged. For the new crop season, USDA's first estimated yield for this year's crop came in at a record high 166 bushels per acre (2 bushels above trend), which pushed ending stocks to a whopping 1.881 billion bushels and above trade expectations of 1.71 billion bushels. Total usage is estimated at 13.775 billion bushels and up from 12.655 billion bushels this season. Brazil production was increased to 67 million metric tons compared with 62 million metric tons last month. As a result, world ending stocks came in at 127.5 million metric tons as compared with expectations of 122 million metric tons. The export sales report was also disappointing and well below estimates.

Ethanol production for the week ending May 4 averaged 897,000 barrels per day. This is up 0.34 percent versus the previous week and up 4.06 percent versus last year. Total ethanol production for the week was 6.279 million barrels which is the highest weekly total since March 2. Corn used in ethanol production for the week ending May 4 was estimated at 95.55 million bushels as compared with 94 million bushels per week necessary to meet USDA's estimate. Stocks were 21.4 million barrels, which is down 3.8 percent versus the previous week but up 4.6 percent versus last year.

Planting progress as of May 6 had 71 percent of the U.S. corn crop planted, up from 53 percent the previous week and above the five-year average of 47 percent. Emergence was at 32 percent, up from 15 percent the previous week and the five-year average of 13 percent.

Soybeans: long liquidation, USDA report dominate

As of the May 10 close, July soybeans were down 23 cents and November was down 7.75 cents. Longer-term fundamentals remain bullish for the soybean market.

Soybeans struggled to start last week as the first three days of the session opened lower, losing almost 48 cents over the three days. The Eurozone debt crisis caused concern throughout the commodity markets with the U.S. dollar much higher, while other commodities fell. Sharp losses in the Dow Jones and crude oil pressured soybeans through the first half of last week. Long liquidation was a negative force as noncommercial traders sold a portion of their record-sized net-long futures position. Additionally, traders were positioning ahead of the May 10 USDA report. Combined export sales of 170,000 metric tons of old crop and 165,000 metric tons of new crop were announced on May 7 and 8, ending eight consecutive days of announced sales. Export inspections were bearish, coming in below trade expectations and below the amount needed to keep pace with the USDA's projection.

The losing streak ended May 10 when soybeans opened higher due to a bullish USDA report. The report confirmed a tight ending stocks outlook for the season, as well as increasing usage further than expected. USDA's report was bearish for corn, causing losses that spilled over to soybeans, which in turn limited gains somewhat. The May 10 export sales report from USDA came in above expectations and well above the amount needed to keep pace with projections.

The May 10 report lowered U.S. ending stocks for 2011 to 2012 to 210 million bushels, below trade expectations and down 40 million bushels from last month. U.S. ending stocks for 2012 to 2013 were estimated at 145 million bushels, the lowest May estimate since 1988 and below expectations. World ending stocks for 2011 to 2012 were lowered from 55.52 million to 53.24 million metric tons, while 2012 to 2013 was estimated at 58.07 million metric tons. USDA trimmed estimates for 2011 to 2012 in both Argentina and Brazil, while setting its 2012 to 2013 estimates at 55 million and 78 million metric tons, respectively.

Barley

USDA made no changes to barley's 2011 supply and demand estimates. For the 2012 crop year, USDA estimated barley production at 200 million bushels (3.3 million acres planted, 2.9 million acres harvested and yield of 69 bushels per acre). Barley ending stocks are expected to increase 15 million bushels from 2011 to 60 million bushels.

USDA reported no barley export shipments for the week ending May 4. There were no reported barley export sales for the week ending May 4.

Cash barley bids in Minneapolis declined slightly last week, putting feed barley bids at $5.15 per bushel while malting barley bids remained at $7.

Durum

USDA made no changes to durum's 2011 production estimates.

USDA reported no durum export shipments for the week ending May 4. USDA estimated durum export sales pace for the week ending May 4 at 700,000 bushels.

Cash bids for milling quality durum on May 10 were at $7 per bushel in Berthold, N.D., while Dickinson, N.D.'s bid was at $7.30.

Canola

Canola futures on the Winnipeg, Manitoba exchange ended May 10 almost $2.50 (Canadian) higher. Canola traded with small losses throughout most of last week because of spillover selling from a lower U.S. soybean complex and from rapid planting progress. Canola firmed toward the end of last week in response to USDA's crop production report, which showed even tighter-than-expected stocks of U.S. soybeans, which in turn means tight vegetable oil supplies. The canola market traded with losses throughout the session mainly due to spillover selling from a weaker U.S. soybean complex. Additional support was tied to the Statistic Canada stocks report, which estimated canola stocks at the lowest level in seven years. Canola stocks were estimated at 4.27 million metric tons compared with 6.15 million metric tons last year.

Cash canola old-crop bids in Velva, N.D., on May 10 were at $29.33, while new-crop bids were $25.93.

Sunflowers

As of May 6, 4 percent of North Dakota's sunflower crop was planted compared with 2 percent the previous week and 1 percent for the five-year average.

Soybean oil export sales pace for the week ending May 4 was estimated at 30.1 trillion metric tons, bringing the year-to-date total to 402.9 trillion metric tons, compared with last year's 1174.6 trillion metric tons.

Cash sunflower old-crop bids on May 10 in Fargo, N.D., were at $26.90 while new-crop bids were at $25.70.

Grabanski is president of Progressive Ag, a Fargo, N.D.-based hedge brokerage firm. Reach Grabanski at (800) 450-1404.