Frisky market rally ignores larger reality of oversupply

It was out with the old and in with the new when crop markets rallied on the United States Department of Agriculture’s planting intentions report.

But even though we all get frisky in the springtime and want to forget about the dreary old crop hanging over us, that friskiness can distract from reality.

Sure, U.S. farmers say they’re going to plant fewer acres of corn and soybeans than almost anybody expected, but there’s still a mountain of old crop sitting around, U.S. exports have been weak, and at some point, that overhanging supply might begin to draw back some of the attention.

As well, farmers don’t always stick with what they tell USDA in March when it comes to acreage. Will farmers really back away from corn and soybeans, and pile into spring wheat?

On the same day the prospective plantings report surprised the markets with bullish corn and soybean acreage estimates, its quarterly stocks report did nothing to suggest that North American markets won’t continue to be burdened with heavy supplies of corn, soybeans and wheat.

Few people seemed to notice the bearish stocks report, but it probably deserves to be the bigger deal. Combined with a weak export flow this year, heavy stocks of corn and soybeans make DTN analyst Darin Newsom fear the market won’t be able to find much reason to significantly rise without a serious weather event.

He called the soybean stocks, which USDA boosted, “alarming,” and expects record U.S. corn-ending stocks.

“We’re going to have to look at this (rally immediately after the reports were released April 29) as an opportunity,” said Newsom.

Glacier MarketsFarm analyst Bruce Burnett described the generally bearish USDA stocks numbers as “lost in the hoopla” of the planting intentions.

Wheat fell on the release of the acreage intentions report, with spring wheat becoming popular again in North Dakota and Minnesota and expected to add at least an extra million acres.

All-wheat stocks fell, but not enough to alleviate the oversupply that has made wheat such a disappointing crop to have in the bin recently.

It’s understandable that the market preferred to bite into the fresh meat of prospective plantings rather than munch on old-crop stocks that had been dressed up a bit.

But at some point, the old-crop stocks will become new-crop stocks, and that’s when the likely reality of a still-saturated North American market will sink in.

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