Today, the U.S. Department of Agriculture is due to release their Quarterly Grain Stocks and Planted Acreage Report. A highly anticipated report for producers, end users and marketers with some rather large, yet expected, adjustments to be made. This also comes as we are already in a weather market with more potential heat and dryness to come in the months of July and August. Needless to say, there are several bearish and bullish expectations and with a potential surprise from the USDA, the markets will likely be very active.
The average trade estimates for the coming report stands at 4.528 billion bushels of corn stocks and acres near 93.3 million in comparison to Zaner Group estimates of 4.437 billion bushels and 94 million acres. Preventive planting should be significantly lower than last year and while much of those acres likely went into soybeans, for guys that had good weather while planting corn could easily and likely kept on planting a few extra days. However, many like to talk about acres and the possibility that acreage will be the market mover of the day, I think the more likely surprise will be coming from the quarterly stocks. Cattle and hog herd sizes have been increasing and lower prices are optimal for increasing demand and we have had several years now to rebuild demand that was previously lost during high prices. Additionally, crude oil has rally back up the 50 dollar per barrel region and has sparked life back into the ethanol industry which saw a decent increase in demand this week as well as substantially improving profit margins. While ethanol consumption is easy to track, feed usage is a different animal and much harder to accurately track and may be the wild card.
While this report may provide a bearish reaction, I think the market will quickly remember that next week Tuesday when the trade reopens is only July 5th. There is plenty of weather market left to trade and drought remains a huge influence. Crop conditions for the time being remain strong with corn at 75% good/excellent and soybeans at 72% good/excellent but we did see soybean conditions fall 1% on Monday. Corn conditions held steady on Monday but the very poor to poor category did increase by 1%. In addition we also saw a drop in topsoil moisture with the adequate group falling 3% and surplus falling 2% and subsoil moisture lost 2% for adequate and 2% for surplus. Rain makes grain and we still need rain. The southern Corn Belt is now moving into the high moisture consumption period of tasseling/pollination and when joined with July heat, evaporation will can remove a lot of moisture fast without frequent showers to supplement. August will be key for soybeans and the weather models remain hot with a strong chance of dryness.
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Long story short, the USDA may offer up some surprises on Thursday and potentially bearish, yet I think it will be short lived. Today’s sell off following an increase in precipitation and decrease in temperatures shown that we are already trading weather and weather forecasts change more often than the days change. We are not out of the woods yet. However, this is not 2012. A recovery back to recent highs should be treated as an opportunity to make the sales that were missed before. Drought will likely remain a topic but at the end of the day the only thing that will matter is the final production number and the potential remains for another good crop. Emotions are a powerful aspect in the market and when emotions run high, so does volatility. Good luck on the report and happy trading.
