The U.S. Department of Agriculture's (USDA) October crop updates provided some surprises: U.S corn and bean yields were lower than expected while U.S. and world wheat stock revisions were in line with trade ideas.
Although the trade expected a rise in the U.S. corn yield because of better-than-expected harvest talk, the USDA slimmed the national yield by 1.1 bu. to 154.7 bu.-when it dropped the top five producing states yields (IA, IL, MN, IN by 2 bu. each and NE by 6 bu.) this month. In addition, it increased 2007 corn plantings by 728,000 acres, because of higher WCB and Plains interagency data from Farm Service Agency (FSA). Overall, the U.S. corn crop rose just 10 million bu. to 1.318 billion this month. However, carryover for 2007/08 rose 322 million bu. to 1.997 billion (near 2005/06 levels) due to last month's higher 2006/07 carryover-as well as reduced feed and ethanol demand projections for 2007/08, because of slow summer demand and low ethanol prices.
Late-season heat and dryness in the Ohio River Valley and the Southeast left U.S. soybean yields unchanged at 41.4 bu../acre vs. expectations of a modest rise this month. Reduced seedings in the WCB and Southeast also contributed to this month's lower U.S. soybean output of 2.598 billion bu. (down 21 million), as 471,000 less plantings were projected after the latest FSA data was available. However, the USDA didn't adjust its 2007/08 U.S. ending stocks outlook this month, and left the demand forecasts unchanged. This fall's strong prices did prompt USDA to raise its Brazilian bean planting estimate by 500,000 hectares to 22 million, resulting in a 1 mmt increase in its 2008 bean crop to 62 mmt vs. 59 mmt last year.
As expected, the USDA cut its U.S. and world wheat ending stocks projections, but higher FSI (+3.3 mmt), Canadian (+0.3 mmt), and Argentinian (+0.5 mmt) crops countered smaller outputs in Australia (-7.5 mmt), EU (-1.07), and U.S.(-1.25 mmt )-resulting in only a 5.4 mmt decline in world stocks to 107 mmt. The USDA did raise old-crop U.S. export demand this month, but also cut this year's feed demand to last year's level-despite this summer's higher disappearance and wet harvest quality problems. U.S. wheat stocks might tighten slightly, but the prospects of a 10 million hectare jump in world seedings and 2 million-3 million higher U.S. higher acres will likely hang over this market.
Wheat producers should continue to finalize old-crop marketing at current prices and have 40%-50% of 2008/09 sales contracted or hedged basis $6.65-$6.85 in July 2008. Tightening U.S supplies and South American growing season uncertainties, with current dryness in Mato Grasso getting their planting season off to a slow start, keeps us holding soybeans for higher prices for later this fall or winter. With demand slackening, corn likely will be in a $3.35-$3.75 trading range for nearby prices into 2008. End-users should use lower values to cover first-half needs while producers should look to advance sales to 60%-65% on the top-side trade.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
