USDA report ends price slump | Market analysts say oversold market conditions should soon be relieved and prices recover
The U.S. Department of Agriculture’s Jan. 11 reports didn’t change much, but they might have been enough to end the recent slump in crop prices.
The low ending stocks verified by the USDA were met by a corn and wheat rally Jan. 11. Soybeans bounced around before closing the day only slightly weaker.
The rally became general Jan. 14, with all three big crop classes, corn wheat and soybeans, rallying.
The consensus of analysts Jan. 11 was that the reports were bullish for wheat, bullish for corn and slightly bearish for soybeans.
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Some of the numbers in the reports surprised analysts, such as higher than expected 2012 U.S. production of corn and soybeans, higher animal feed use and lower winter wheat acreage.
However, they were only modest revisions when combined to form the ending stocks projections.
The numbers verified that stocks of soybeans and corn are low and that wheat’s well-supplied fundamental situation is becoming more bullish.
The Jan. 11 price moves were modest compared to recent years when the January USDA reports sparked limit up or limit down moves in futures prices.
However, the continuation of the rally into Jan. 14, with hefty increases, might be evidence that the oversold conditions in the market, built by a long December-January slide in prices, were being fixed.
A couple of hours before the reports were released, DTN analyst Darin Newsom published a column noting that all three big crops were in bullish technical and fundamental situations, but that the USDA could possibly alter that situation if its numbers diverged from expectations.
“Like the other Chicago grains, (wheat’s) weekly momentum indicators show the market to be sharply oversold and nearing a bullish turn, all while low volatility remains an open invitation to renewed investor buying interest,” wrote Newsom.
So a rally might have been shaping up even without the modest revisiions in USDA estimates.
That’s the view of Pro Market Communications’ Errol Anderson.
“With the markets technically oversold, coming down so hard in front of a report, I think we’re due for a bounce,” said Anderson.
“The worst of the selling, at least for the time being, is in. That’s what it’s telling the trade. I think we’ll bounce and we’ll have some support into February.”
Futures broker Ken Ball of PI Financial said the rally is mostly due to relieving oversold conditions rather than any major change in outlook.
“It’s not a surprise that wheat is up because wheat has plunged $1.50 per bushel in the last six weeks,” said Ball.
“It’s due for a bounce.”
