September 29 – USDA Sets Bullish Tone for Corn and Soybean Prices

Grain markets reacted sharply Friday to the quarterly Stocks Report and Small Grains Report. Final corn and soybean stocks for the year ending Sept. 1 came in lower than analysts average expectations. The news set a bullish tone at the Chicago Board of Trade. We covered the release of both reports earlier this afternoon. 

But the same couldn’t be said for wheat. The Small Grains report went against broader trader sentiment, particularly the USDA’s surprise note on spring wheat production. We break that down and more in our daily recap from Chicago.

Corn Prices Gain After Stocks Report

U.S. markets reacted positively to the agency’s quarterly report on corn stocks. As noted in the figures below, corn inventory levels came in lower than average analysts’ expectations.

THIRD QUARTER STOCKS (million bushels) (USDA)
  9/1/17  Avg. 9/1/16  Y-O-Y
Corn 2,295 2,349 1,737 32.1%

Though stocks are sitting at a 30-year high, the final number was lower than the USDA had forecasted in recent reports. Corn stocks increased in every major producing state except for Nebraska and Ohio.

The December corn contract added 2.75 cents to close the day above $3.55. The March corn contract added 2.5 cents to finish the day just below $3.68.

As our friends at AgChieve note, corn prices have recovered nicely during the month of September.

Source: AgChieve

 

A $0.30 gain this month is going to test resistance points heading into October.

Soybean Stocks Rise Again

It was a big day for soybean prices. The November soybean contract added 8.75 cents to finish the day above $9.59. The January soybean contract added 8.25 cents to finish the day at $9.785.

Soybean prices were up higher after the release of the quarterly stocks report. However, some traders took some gains off the table… or just didn’t trust the USDA numbers.

The USDA reported end stocks for soy at 301 million bushels. That was nearly 10% below the average analyst estimate and came in lower than USDA projections.

THIRD QUARTER STOCKS (million bushels) (USDA)
  9/1/17  Avg. 9/1/16 Y-O-Y
Soybeans 301 339 197 52.8%

Still, it was a big jump from last year. Overall, soybean stocks increased by nearly 53% on the year. That was fueled in large part by farmer hoarding. As we noted earlier today, the USDA said that farmers increased on-farm stocks by more than 100% year-over-year.

We’ll be looking for additional movement next week when we see the final crush and export figures.

Wheat Prices Dip In Chicago, Minneapolis

Someone had to lose with the USDA reporting.

Today, it was wheat farmers.

In Chicago, the SRW futures contract for September fell 6.75 cents to close the day just above $4.48. The March contract fell 7.75 cents to finish at $4.665.

Down in Kansas City, the HRW contract for December finished the day down 10.25 cents to close just below $4.43. The March contract fell 10.5 cents to finish at $4.6025.

Prices fell after quarterly wheat stock figures came in higher than average expectations.

THIRD QUARTER STOCKS (million bushels) (USDA)
  9/1/17   Avg. 9/1/16  Y-O-Y
Wheat 2,253 2,220 2,545 -11.5%

It’s not terribly surprising that stocks fell year-over-year given production weakness and some farmers selling into strength earlier this summer.

But what was surprising: The USDA’s forecast for spring wheat production.

Before we get to that number, take a look at what happened in Minneapolis.

The December Spring Wheat contract shed 21.25 cents to finish the day under $6.24. The March contract dropped 19.75 cents to close at $6.37.

Yes… it was that bad. Here is a recap of the figures…

Small Grains Report (million bushels) (USDA)
2017-2018 Production 9/29/17              Avg.        2016-17         Y-O-Y
All Wheat 1,741 1,725 2,310 -24.6%
Winter 1,269 1,287 1,713 -25.9%
HRW 750 758 1,082 -30.7%
Spring 416 389 493 -15.6%
SRW 292 306 345 -15.4%
White 227 223 286 -20.6%
Durum 55 50 104 -47.1%

As noted in the figures above, the Spring Wheat production number was well above expectations. Even though total production came in 15.6% lower than last year, markets were stunned by the 416 million bushels expected by the USDA.

Average expectations were sitting at 389 million bushels.

Elsewhere in the global wheat markets, the complex did receive a little bit of support from analysts polled by Reuters. The Brugler Report notes that total production in Australia sits at 20.15 million metric tonnes, according to the polled analysts. The USDA recently forecasted 22.5 million metric tonnes earlier this month.

Finally, if you’re looking for a reason to eat away the pain of today’s wheat report… there may be good news on the horizon (and a way to avoid inflamation if you’re me)…

Gluten-free wheat flour…

Elsewhere in the Markets

Oil prices were testing two-year highs as markets move closer into supply and demand equilibrium. The ongoing efforts by OPEC to cap excessive production have helped limit reckless pumping, while demand continues to stabilize around the globe. A small geopolitical premium has been added in the wake of North Korea’s saber rattling and news that Turkey is considering drastic efforts to hamstring independence efforts in the northern Kurdish region of Iraq.

Meanwhile, the U.S. markets showed optimism after the Senate began exploring a plan to drastically overhaul the American tax code. President Trump’s advisors aim to slash the top individual rate from 39.6% to 35%, corporate tax rates from 35% to 20%, and small business rates from 39.6% to 25%. The plan will also aim to eliminate inheritance taxes and the AMT.

 

 

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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