Bigger crops still expected | Latin American weather expected to soon drive grain prices
The long-awaited November World Agricultural Supply and Demand Estimates report wasn’t as grim as many were expecting, but the bottom line is that there is still a burdensome supply of grains and oilseeds.
“What today’s report maybe showed us is that it’s not going to be as bad as we first thought. I think that’s the key thing,” said Errol Anderson, an analyst with ProMarket Wire.
“There was some talk that the corn was going to head down to $3.70 a bushel. Well, I don’t think so. Not with these numbers.”
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USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
The U.S. Department of Agriculture pegged the U.S. corn crop at 13.99 billion bu., a record but 33 million bu. below trade expectations.
The number that most analysts focused on was ending stocks of 1.89 billion bu., which was well below trade expectations of 2.06 billion bu.
Markets viewed the smaller stocks number as supportive. Nearby corn futures were up 6.25 cents a bu. at the close of markets Nov. 8.
Dan Basse, president of the AgResource Company, called it a “relief rally” because markets were relieved the news wasn’t worse.
He believes corn prices could reach as high as $4.40 per bu. before year-end, but eventually there is going to be another dramatic downward spiral.
Basse believes the big U.S. crop is only going to get bigger. He is forecasting an average yield of 163 bu. per acre, up from the USDA’s November estimate of 160 bu. per acre.
“We’ll have what we call a post-harvest rally as the market tries to get the farmer to sell, but thereafter it’s going to be Latin American weather that will drive price direction,” he said.
“We’ll see corn prices drop towards $3, soybean prices drop under $9 and wheat prices probably closer to $5.50,” said Basse.
Rich Nelson, chief strategist with Allendale Inc., said the U.S. corn ending stocks estimate was lower than anticipated, but 1.9 billion bu. is still “very burdensome.” He believes it equates to a corn futures price of around $3.90 per bu.
“I don’t in any way call (today’s price) a harvest low,” he said.
Nelson believes corn prices will bounce around a bit through December and then head down again next year.
The USDA’s soybean estimate of 3.26 billion bu. was 33 million bu. above trade expectations.
However, the USDA increased its export estimate by 80 million bu. and the U.S. crush by 30 million bu.
“I wouldn’t call it bullish in any way,” said Nelson.
“I would call it neutral, which is a shift in mindset from straight bearish.”
He expects nearby soybean futures to be in the $12.50 to $13 range.
Anderson said the pace of soybean exports was bullish news, and a price hike may be needed to ration demand. Nearby soybean futures were up 27.25 cents at the close of markets Nov. 8.
He said the newfound strength in soybeans also supported canola, but growers should still focus on moving their crop as soon as they have a delivery opportunity.
“The bottom line is by crop year end there’s going to be a lot of canola left over. There really is,” said Anderson.
“Sell the rebounds and don’t get stubborn about it because the market will kick us in the pants and it will come back down.”
If there was any surprise in the USDA report, it was with the wheat number. The moderate 16 million bu. increase in U.S. production was anticipated, but “the surprise here was they didn’t touch exports,” Nelson said.
“The trade was looking for a good 50 million bu. increase in exports.”
It’s because the U.S. is already 70 percent sold on its USDA export target compared to the five-year average of 63 percent sold.
Anderson believes the wheat market is bottoming out with maybe 10 percent of the selloff remaining.
He expects huge South American crops.
