USDA Report Holds Surprises

(Stephen S. Nicholson) – USDA’s January reports hold surprises, including higher production, stocks and winter acreage.

We expect this morning’s USDA report to have more of a psychological than fundamental impact on the market.  This morning’s numbers were above pre-report expectations, but the actual impact to the balance sheets was minimal at best.  It is likely that the residual effects of today’s report will be short-lived as the market’s attention will turn quickly to the continued drought in South American and its affect on soybean and grain output.

Grains’ & Soybeans’ Stockpiles Increase

Production (bln bu.)

December 1 Stocks (bln bu.)

2011/12 Ending Stocks (mln bu.)

Vegetable Oil

CBOT soybean oil futures opened 100-110 pts. lower and is currently trading 60-75 pts. lower.

• Third consecutive day of volatile trading as the market digests today’s USDA reports.
• Here are balance sheet highlights:
  • 2011/12 U.S. soybean crush and export was lowered 10 mln bu. and 25 mln bu., respectively.
  • On the U.S. soybean oil balance sheet, USDA lower production 165 mln lbs. and lowered exports 200 mln lbs. to a surprisingly low 1.2 bln lbs.
  • USDA left soybean oil use for methyl ester production unchanged at 3.6 bln lbs.
  • Consequently, 2011/12 soybean oil ending stocks increased 25 mln lbs. to 2.315 bln lbs.
  • South American weather will continue to be on the front burner—there is no rain in the forecast into the week of the Jan. 23^rd, but temperature will be moderate in the 80s.
    

Price Outlook:  Soybean oil futures broadened out the trading range today, but have climbed back into the $0.51-$0.54 range.

Wheat

Wheat opened $0.20-$0.30 per bu. lower and is currently trading $0.30-$0.40 per bu. lower.

Winter Wheat Seedings (mln acres.)

• Highlights from USDA reports:
  • The big surprise was the higher than expected winter wheat acreage.
  • The major change in the balance sheet was the 25 mln bu. increase in exports to 950 mln bu.
  • The result was a minor downward adjustment in ending stocks to 870 mln bu., down 8 mln bu.
  • Weekly U.S. wheat export sales were 438,200 MT, above expectations.
  • NOAA issued its monthly La Nina update late last week—they are expecting La Nina to continue into the March-May time period which means more dry weather for HRW wheat growing areas.
    

Price Outlook: Today’s market action has done significant chart damage with the greater acreage figures; wheat futures are going to be on the defensive.

Sugar

#11 Sugar futures opened 10-20 pts. Higher and are currently trading 10-20 pts. lower.

• #11 sugar futures are chopping around today.
• EU granted licenses to export 650,000 MT of sugar; EU is looking to get rid of export sugar.
• USDA threw a curve at the domestic market today.
  • USDA lowered 2011/12 cane production 15,000 STRV to 3.345 mln STRV.
  • Significant cuts were made to imports, lowering both TRQ and Mexican sugar imports.
  • In the end, 2011/12 ending stocks were nearly cut in half to 620,000 STRV, which resulted in the stock-to-use ratio declining to a record low 5.3% from 10.3 last month.
  • American Crystal Sugar continues to operate with replacement workers as labor negotiations have resulted in a lockout.
  • However, with the market well sold, it is difficult to envision prices dropping off significantly in the foreseeable future.

 Price Outlook: Today’s USDA numbers are going to be supportive to prices and any recent “discounting” will be coming to a quick end.