RAY GRABANSKI COLUMN: USDA raises soybean stocks, lowers corn
Wheat Wheat was sharply lower on pressure from bearish U.S. Department of Agriculture reports early in the week. USDA released its planting intentions and quarterly stocks reports March 31. While traders had speculated that the reports would be b...
Wheat was sharply lower on pressure from bearish U.S. Department of Agriculture reports early in the week. USDA released its planting intentions and quarterly stocks reports March 31. While traders had speculated that the reports would be bearish for wheat, the report provided confirmation. Projected acres were at 63.8 million acres, with preliminary estimates averaging at 63.63 million acres. In 2007 to '08, there were 60.43 million acres planted for wheat in the United States. However, the main bearish news came from the quarterly stocks report, which revealed that as of March 1 is 710 million bushels, with average preliminary estimates at 668 million bushels. This along with some spillover pressure from soybeans pushed wheat sharply lower early on in the week. By midweek, wheat recovered some, having been due for a rebound after recent losses. Speculation that wheat had been oversold brought new buying interest to push wheat up sharply higher. Late in the week, wheat was mixed with some front months supported by concerns over old crop wheat stocks and other months pressured by the speculation that new crop will be much larger. Exports were neutral and provided little direction for the market.
USDA export inspections for the past week were at 16.4 million bushels. This is with preliminary expectations of 15 million to 21 million bushels. Primary destinations were Japan and the Philippines. Export sales for the week were neutral at 9.8 million bushels. This was well below the preliminary expectations of 16.5 million to 23.9 million bushels. However, it still is enough to stay on pace for the year.
These grain markets are sure full of surprises, and we wonder what spring 2008 can bring. Can corn prices rise much more than $6 December? Will funds blow corn prices higher, and then bust them like hard red spring wheat? How much acreage can farmers switch from soybeans to corn based on price incentives from March 1 to planting? We are rewriting history today.
An interesting historical question might be related to the often-pointed-to bust of the Dutch tulip rally, where tulips found huge speculative buying interest at one time. Is the Chicago Board of Trade trade making any more sense these days than the famous Dutch tulip rally?
With the strange goings on of mortgage banker behavior, and now the bust caused by it, one really has to question the integrity of some age-old institutions once greed gets the best of them. Perhaps there is a lesson to be learned here.
Corn futures were sharply higher with the primary source of the bullish streak coming from the March 31 USDA reports. The planting intentions and quarterly stocks reports both were viewed as bullish for corn. Planting intentions revealed that 86.01 million acres are to be planted for corn this spring, with the average preliminary estimate at 87.39 million acres. This is much lower than 2007 to '08's 93.6 million acres. This means 8 percent fewer acres for corn this growing season. This, in addition to a strong demand and the fact that early planting in the southern Midwest has been delayed because of heavy rains and flooding, provided the support to keep corn moving sharply higher for most of the week. Strong exports also provided some underlying support. Corn is expected to stay higher with concern over the loss of acres this coming growing season, especially amid the expansion of the ethanol industry. Weather forecasts for the southern Corn Belt and eastern U.S. are calling for rain for the full two weeks out. This would put significant pressure on the market to move higher and overcome those concerns.
USDA export inspections were at 42.5 million bushels. This is with preliminary estimates of 34 million to 45 million bushels. Primary destinations were Japan and Mexico. Weekly export sales for corn were bullish at 37.2 million bushels. This is with preliminary expectations of 21.7 to 29.5 million bushels. This puts corn not only above expectations for the week but well ahead of what was needed to stay on pace to meet the projection of 2.45 billion bushels for this marketing year.
While corn is pushing new highs, both wheat and soybeans seem locked in a cascading downward trend, with prices quickly deteriorating from recent high levels. That means we have recoveries, but it seems like it's a couple days of limit up, followed by more days of limit down moves recently. Can corn continue to rally without taking wheat and soybeans with it? It seems like the price comparison between corn and soybeans and wheat can only stretch so far. At a ratio of soybeans-corn at 1.9 now (favoring corn more now than all of winter 2006 to '07), it's hard to imagine it getting much better. We attracted 15 million acres of corn from soybean-wheat-other crops winter 2006 to '07, so how much can we attract from March 1 forward in 2008? Farmers in the western Corn Belt (the less wet area) have a unique opportunity to increase profits by $150-plus an acre by simply switching soybeans to corn at the expense of central and eastern Corn Belt farmers. Will they do it?
It's not often we get a period where corn prices rise 35 cents and, at the same time, soybean prices drop $3 or more. But if you haven't noticed, that's exactly what happened in March 2008. These kinds of price adjustments, where crops competing for acreage can change prices so substantially in such a short period of time, is just fitting for 2008.
Soybean prices began the week lower, losing up to the expanded limit of 70 cents at times March 31. The sell-off was a direct result of USDA planting intention and quarterly grain stock numbers, both of which proved very bearish for soybeans. For stock numbers, soybeans were reported at 1.428 million bushels versus the expectations for 1.352 million bushels. This is a big discrepancy, further worsened by the intended acreage numbers. These are as of March 1, so things should have shifted somewhat, but USDA pegged planting intentions at 74.70 million acres, well above the average trade expectation for 71.5 million acres. That news, and the consequent lack of corn acres, sent the price ratio (normally around 2.5) all the way down to 1.8. This is the market screaming for corn acres. It also means, at least for now, soybeans are going to be "underpriced" in comparison as the market works to fix a new problem.
USDA export sales numbers were released this week for the week ending March 27. Shipments were reported at 23.84 million bushels, near the high end of trade estimates for 17 to 27 million bushels but down from the previous week. Sales numbers were 15.2 million bushels, in the middle of expectations for 12 million to 20 million bushels. Both are neutral to slightly friendly, but in truth, were largely ignored by the market in light of the other news.
It's been a rough few weeks in the soybean market, but we really are only reacting to existing forces, albeit with more intensity than we are used to. It is important to remember that soybean price have slipped substantially since the March 1 survey date. However, weather, rotation and input cost concerns are all factors that corn is going to have to outbid. This means that by this summer or fall, soybeans are likely to have much more downside. Meantime, however, it is hard to make sales because of the outrageous price discount and wide basis levels. These things will moderate with time, particularly since old crop still is tighter than most industry watchers would like. Producers should carefully examine their options for this spring and consider whether making any adjustments to existing plans would be of benefit at current price levels.
Small grain growers were anxious to see the results of USDA's planting intentions report to see how the high prices of this winter had affected plans. Barley and durum were the most bearish of any of the specialty, contracted crops, which is rightfully so as prices were boosted by all time, inflation-adjusted highs in wheat. Acres were a little higher than anticipated even then, however, with barley reported at 103 percent (closest to expectations) and durum estimated at 122 percent of last year. The biggest surprise was South Dakota, where durum acres more than doubled from last year. Because of this new information, we would look for prices of both old and new crop to fall as supply concerns are easing considerably.
As many have speculated this year, major crops gained acres at the expense of the less-talked-about specialties. In addition, higher-input crops such as dry beans had an additional hurdle to overcome, and that was pointed out in the 2008 intended acreage report. USDA estimated planted dry bean acres for 2008 at 92 percent of last year with the biggest percentage decreases in Oregon, South Dakota and Montana. Admittedly, these are not the major producers, but states such as Minnesota also saw losses. This is friendly, but probably not enough to overcome any barriers to production that already were in place. Prices should stabilize to decrease in coming weeks as dry bean fundamentals are not nearly in as dire a situation as other crops.
Oilseed markets took a big hit on March 31 as USDA released its annual planting intentions report. The report showed significant losses of the minor oils (85 percent of last year in canola, 104 percent in suns and flax 102 percent). If these numbers were the only influencing factor, prices would go higher, but that rarely is the case. The bigger problem comes with a huge increase in soybean acres and accompanying ideas that vegetable oil needs will be meet in the 2008 to 2009 crop year. That is not to say that there will not be "bumps" in the road along the way, but we would speculate that the top prices could be in for canola and possibly flax (supplies still shorter, but prices unresponsive lately). As for suns, they have done an admirable job of separating themselves from soyoil and could continue to at least hold steady in a range.