Grain futures staged a rally after the U.S. Department of Agriculture's National Agricultural Statistics Service reported corrections in the acres for soybeans and corn for the crop that is being harvested. Frustrating as this is, since all farmers must certify their acres, USDA found a discrepancy in data being reported by FSA offices.
The trade was pretty sure acreage would be reduced since that is where the shock factor was in the Oct. 10 report. It was especially friendly for corn as USDA reduced acres by 1 million after the Oct. 10 report reduced corn acreage by 100,000 acres. Exports were reduced by 50 million bushels, and the yield was pretty much the same at 153.9 bushels per acre. The end result? The carry-out was lowered.
However, the bears will tell you that with the slowing economies in the world and domestically in the U.S., the decline in production will be offset by a decline in demand. The United States is the world's largest corn exporter. U.S. broiler chicks had declined 12 percent from last year by the week ending Oct. 25 and are down 7 percent for the past four weeks. Broiler meat production is expected to continue to decline in the fourth quarter as well. On the flip side, pork production is up 7 percent and beef production is up 2 percent from a year ago.
Export sales commitments stand at 524 million bushels vs. 460 million bushels this time last year. We are nearly at the halfway point for the USDA estimate of exports. The carry-out for soybeans was reduced from the Oct. 10 estimate at 220 million bushels to 205 million bushels.
China bought 14 cargoes in the past weeks export sales report with another seven marked for unknown destinations but most likely China as well. The Chinese government is in the process of rebuilding its reserves while it also has enacted subsidies to the farmer that are substantially higher than the price of soybeans imported from the United States. It also has done likewise for corn. This helps to explain the great demand.
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When looking at foreign economies, I suspect that Europe will be in worse shape along with the U.S. than South Korea, India and China. Those areas have money and while they too are lowering interest rates to the banks to stimulate the economy via through credit, those areas have dollars in their pockets, and a 5 percent growth for China still is pretty good, though a come-down from the consistent 9 percent to 11 percent had occurred for the past four to five years. For the current crop year, China purchases are at 7 million metric tons, up 1 million metric tons from the same period last year.
We are at a critical time in the grains. Soybeans especially, of the previous times when the prior legs fell more than 30 percent (I am told, 15 out of the past 21 prior legs) the low was made in September or October. That would make the Oct. 16 low look like the harvest lows are in. However, I have concern for the timing in the market. Seasonally, soybean prices work higher from here into Thanksgiving.
Remember the old saying, "the bulls get their turkey for Thanksgiving and the bears get it for Christmas?" If that occurs this year, then the decline into Christmas would be hard with new lows. I suspect a different approach may be counter seasonal this year with a low at Thanksgiving. The near-term rally may be nothing more than setting the stage to have room to move lower. That next leg would fulfill a head-and-shoulders top formation on the weekly continuation charts. Bottom
