Grain Spreads: What Report?

Sean Lusk General Commentary Leave a Comment

I purposely sat on my hands this week awaiting today’s crop report prior to commenting on market direction. It looks like it could remain that way a little longer. Today’s numbers from the USDA did little to change my purview for price. I’m bullish long term but the near term is suspect. The only bright spot for prices from a demand standpoint for me was the early morning release by FAS (Foreign Ag Service) on private sales of beans and corn. “Unknown Destinations”otherwise known in the trade known as C-H-I-N-A, bought 270,000 metric tons of soybeans for delivery during the 2019/2020 marketing year; and export sales of 217,040 metric tons of corn for delivery to unknown destinations during the 2019/2020 marketing year. The soybean sales follow yesterdays purchase of 136 K metric tons of beans to China and 133 K of soybean meal to the Philippines. I mention these firm demand signals simply due to the fact that today’s November WASDE (World Ag Supply Demand Est) supply side data from the USDA offered nothing new on beans and hardly anything on corn. Specifically, yield and production were left alone or the exact same as the October report for beans at 46.9 BPA, production at 3.55 billion bushels. Kind of impossible when you think of early winter storms and frost freeze events that were numerous and widespread during October. In my view the USDA also sat on their hands evaluating the soy crop. My fear is that we won’t receive anything meaningful with the soy data until the January report. Crush was lowered some giving a boost to ending stocks to 475 million bushels. The avg trade guess was 432. These are subjective as lower production would draw down domestic ending stocks to the 380/400 million range.

Corn finished the day higher by a whopping 2 cents, but down 12 cents for the week. Funds continue to push it lower and did into the report. There were reasons for short covering following today’s 11 AM release. NASS pegged US corn yield at 167 BPA, vs. 168.4 in October. Exports were lowered 50 Mil. Ethanol use was lowered 25 Mil Bu. Production loss more than offset by weak demand. Harvested acres were again left alone, no change from October. This despite major winter storms hitting the Dakotas and Minnesota through October, that left several inches of snow still on the ground creating a snow pack in these areas. Still the USDA has harvested acres for 2019 higher than 2018. I just don’t believe this to be the case and in my view accurate acreage data for this years crop will ultimately be revealed in 2020. Today’s cut in corn yield gives thoughts to a crop getting smaller, not bigger. So I wouldn’t be surprised to see a push higher in corn if funds cover some of their sizable short of 120 K contracts. After all the crop is likely only 60 percent harvested by next weeks progress report. Major players are well behind with more storms and sub zero temps in the forecast next week. Outside of harvest progress the trade turns its focus to South American weather and of course demand. I’m reticent to mention trade deals with China as the drama and endless commentary never ceases. Still though it could be a big wild card for demand either way,bullish or bearish, that could create a shift in market psychology moving forward if something is announced or both parties walk away.

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