Analysts are talking about the G-20 meeting results heading most Governments toward an “ax and tax” economic policy. Cut spending programs and increase taxes. Do you think these guys have even read about what caused the world to fall into the Great Depression?
Yesterday the USDA shocked traders by reporting fewer acres of corn than anybody expected. How could the traders miss the numbers by so much? The reason is for the past several years the trade corn acreage guesses have been too low.
For several years everybody calculated their corn acres, and please don’t think of this exercise as being anything close to scientific, then the USDA report was lots bigger. This year everybody did their guessing then added more acres because they have missed recent years and because the weather was better and farmers surely planted more corn. Except this year farmers didn’t.
On top of that mistake the USDA stocks were well below what they should have been. Finally the feeding and processing quality of corn was put into real numbers and it took more corn this year because of poor quality. We warned everybody all winter at our seminars and in our writings that the Stocks Reports would likely be bullish but it is easy to quit talking about bullish potentials in a bearish market making new lows.
One of the aspects about markets that we are all subject to is the price trends often dictate the fundamental news that grabs the headlines. Anybody who has been jumping up and down bullish about the corn market has lost credibility and a lot of money in the past two months. Yesterday the bulls were somewhat redeemed, but prices are still way below early spring 2010 prices.
When you add the smaller stocks to the smaller acreage total, corn supplies will be down over 500 million bushels. That is a very big difference and these numbers increase the need to grow a big crop this year.
Grain users will look at the corn numbers and step up their buying. Their worry is what if the weather turns hot and dry? You would not like to have the job of grain procurement with little coverage on the books, these tightened numbers and a fresh weather scare in the market. Everybody will want more coverage. Do remember one problem for corn is we have too much wheat.
Livestock feeders need to buy their corn needs through August now!
Beans have held stronger at every turn all year long and that tells you they really have underlying strength. The owners of cash soybeans want more money and the market will have to go up to get supplies. In addition, we must raise a big bean crop this year and right now the bean crop is a little worrisome.
Independent research firm SovEcon Ltd. cut its estimate for the 2010 Russian grain crop to 82-86 million tons this week, down from their previous estimate of 87 million tons. The official Government forecast is still at 90 million tons, and everybody is well below last season’s 97 million ton output. SovEcon warned of further cuts to the 80 million tons area if extremely warm weather continues in the coming weeks for a few key growing regions.
The Russian spring grain planting is estimated at 29 million hectares, down 1.8 million hectares from last year, with total grain sowing at 44.3 million hectares in 2010, down from 47.55 million hectares last year. Russia’s target of 20 million tons of grain exports will likely be reduced, with plans to subsidize exports possibly postponed.+
A shrinking Russian crop with fewer exports is good news for U.S. wheat farmers. World wheat surpluses have very likely peaked. The likelihood of a decent post harvest rally and improving basis is increasing.
The Buenos Aires Cereals Exchange reported cumulative January-April Argentine soybean crush down 13% from last year, due to surging soybean exports. Argentina shipped over 1.8 million tons of beans in April, more than double last April’s drought reduced total. China accounted for over 80% of those shipments.
Net wheat export sales of 418,400 tons were led by sales to Mexico (143,800 tons) and Japan (118,600 tons). Net corn sales of 649,700 tons for delivery in 2009-10 were down 42 percent from the previous week and 24 percent from the prior 4-week average. Net sales of corn for delivery in 2010-11 were really slow at 76,500 tons.
Net soybean sales of 264,000 tons for delivery in 2009-10 were down 14 percent from the previous week, but up 45 percent from the prior 4-week average. Net sales of 451,000 tons for delivery in 2010-11 were for China (341,000 tons) and unknown destinations (110,000 tons).
The U.S. Dollar index is sharply lower today, still within its narrow trading range, but at the bottom and threatening to break down. Although that should be bullish for grains, traders are increasingly worried about a “double dip” economy as witnessed by the lower equity markets around the world.
