In the midst of the worst credit crunch and financial meltdown to hit the world in seven decades, the U.S. Department of Agriculture's (USDA) October monthly crop update and supply/demand revisions also had some surprises for the trade, with higher U.S. corn and soybean output numbers and increased wheat stocks.
The biggest surprise was an increase in planted and harvested soybeans acres by 2.2 million and 2.14 million acres respectively, as most areas of the country expanded their seedings because of high prices-despite June's flooding conditions in the central U.S. Two states, Iowa and North Dakota, led the way with increases of 500,000 and 550,000 acres respectively, with the Western Corn Belt up 1.6 million overall. The Eastern Corn Belt had a modest 130,000-acre rise, while the Southeast was up 200,000 and the Delta was up 110,000 acres. The USDA cut 2008's overall bean yield by ½ bushel to 39.5, as many country reports were suggesting, but this month's administrative adjustment in acres pushed the crop to 2.983 billion bu. This 49 million bu. increase isn't big, but higher output coupled with last month's larger carryover of 205 million pushed the USDA's 2008/09 ending stocks to 220 million from 140 million bu. last month. The USDA raised export demand by 50 million bu., but also cut crush by 15 million-which seems unnecessary, with prices lower.
In corn, the U.S. yield rose to 154 bu. from 152.3 as the big states of Illinois (+5 bu), Iowa, Nebraska, and Minnesota (all +4 bu.) pushed national output to 12.2 billion from 12.07 billion bu. last month. The lack of an early freeze impacting this year's late-maturing crop may even add another bushel to yields next month. The USDA did increase 2008/09 feed usage by 150 million bu. to 5.35 billion, and cut ethanol demand by 100 million. This kept this year's ending stocks at 1.154 billion vs. last month's revised 2007/08's 1.624 billion bu. level. World coarse grains stocks were left unchanged, but world corn stocks were actually cut to 107.8 mmt from 109.9 last month.
U.S. wheat stocks were boosted by 27 million to 601 million bu. when the USDA raised feed usage by only 10 million to 260 million-while the trade was talking 20 million to 40 million after September's lower stocks report. The lack of increase in exports, given the current seasonal pace, also contributed to this higher number, but this month's larger world supplies (Canada + 1.9 mmt and FSU +2.1 mmt) and stocks probably kept them cautious.
The big unknown: What will be the demand for the world's grains and oilseeds once the current equity market meltdown is over? New crop corn and beans have risk to $3.50-$3.75 and $8.00-$8.50, if the world's financial markets stay defensive. But if the credit markets begin to loosen, the CBOT could find some stability at any time.
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.
