Grains –
Just some short stream of consciousness this morning:
- Friday’s report numbers were obviously bearish.
- For soybeans, it is likely o/c residual use needs to be revised down a bit, but WASDE might not feel the need to do that yet. For their n/c balance sheet in May, the acreage combined with their yield starting point and the o/c carryout should give us a starting point of around a 500 carryout. I suppose you could argue they’d raise demand to lower that a little, but where is that demand going to come from? South American crops get bigger.
- In corn, F&R likely gets revised lower based on the stocks number. This is likely somewhat offset by further increases to the ethanol grind, but that really won’t add up to much. Even with the sharp YOY reduction in corn area, the initial starting point for the May WASDE n/c carryout should be somewhere +/- 2.2 bil bu, just like the Outlook Forum showed. Again, there isn’t much argument for higher demand either. In fact, based on good conditions for Brazil’s safrinha crop so far one could make the argument their n/c export figure is already too big.
- Wheat stocks were larger than expected which should lead to a F&R reduction and an overall larger o/c carryout. In terms of n/c, the focus is on weather. The US Plains has been treated fairly well so far this spring, and FSU areas are thought to be in pretty good shape overall. The only place in the world with somewhat stressful conditions for wheat might be North Africa right now. Despite the lower area and production in the US, as of today it doesn’t appear we’re done cleaning up world wheat supplies.
- Does any of this matter? Corn and wheat were higher on Friday and everything is higher this morning at the time of writing.
- Of course it matters, but—we’ve got a looooong spring and summer ahead of us. Markets have a massive short position and when was the last time we had a spring/summer where something didn’t happen to spook the market?
- I’m not calling for a rally, but I just question the near term downside until at least we get some planting progress. Prices should hold some planting risk premium and some weather risk premium. At these price levels, I’d say the risk premium is pretty minimal right now.
- Food for thought—Was Friday’s soybean acreage number the high water mark for the year?
Don’t forget the first national Crop Progress report will be released this afternoon. I highly doubt it’ will post a corn planting progress figure just yet, but maybe. Cotton planting and winter wheat conditions will be the likely headliners today.
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