Corn, soybean prices catch tailwinds from USDA report

Corn, soybean prices catch tailwinds from USDA report

Corn bulls caught a bit of tailwind off the "limit-up" trading in the soy complex. The USDA made production cuts to both the Argentina and Brazilian corn crops, and arguably released a slightly less-bearish-than-expected stocks number. Bulls are now arguing that the rainy forecast ahead and massive rally in soybeans might make it much easier for producer to switch late-planted acres from corn to soybeans.

Keep in mind, the USDA is using 93.6 million acres of corn with an average yield of 168 bushel super acre, which puts a massive 14.430 billion bushels currently in play for new-crop. This is up a whopping 829 million bushels from last year and 214 million higher than the previous record set back in 2014/15. 

U.S. new-crop corn ending stocks for 2016/17 are now projected at 2.2 billion bushels, up +350 million from the old-crop 2015/16 projection, and one of the highest forecasts we've seen in years. Global corn supplies for 2016/17 are projected at a record 1,543.2 million tons, up +41.0 million.

As a producer I remain patient, hoping we see some type of reduction in U.S. acres and at least talk of lower yields in the weeks ahead. I realize "hope" is not a strategy to hang my hat on, but with 50% of my new-crop risk already reduced and soybeans now heavily priced, I feel comfortable with taking the chance.

As a spec I remain on the sideline, looking to be a longer-term buyer on a deeper break in price. I'm still uncomfortable trying to navigate the short-side turns in the current waters.

Soybean bulls were tossed an easy-to-hit two-seam fastball right down the pipe earlier this week. In case you missed the fireworks, the USDA reduced the old-crop ending stocks to 400 million bushels and now estimate new-crop 2016-17 ending stocks at just 305 million bushels.

The market responded with meal closing "limit-up", trading a few days under expanded limits, and JUL16 soybeans trading up over 60¢, temporally pushing north of $10.90 per bushel. The rally triggered another one of our new-crop cash-sale targets at $10.50 vs, the NOV16 contract and is extremely close to triggering another cash sale vs. the NOV17 contract, which traded to $9.90 per bushel.

From my perspective, using the rally to reduce long-term risk continues to remain the name of the game! We've done a great job to this point, remaining patient and locking in good profits; now we need to be extremely smart and not let ourselves get overly greedy.

There's a strong chance a lot of the bullish cards have now been flipped over. U.S. soybean acres are more than likely moving higher, especially with more rains in the forecast and possible longer-term delays in final corn planting for a few key areas. You also have to imagine the recent major spike in price will make it much easier for producers with fields in limbo to switch more acres back to soybeans.

I also suspect South America starts to get its legs back underneath itself. We also have the headlines about China starting to dump more of their domestic soybean inventory, signaling perhaps a slight pullback form their current import demand.

Also keep in mind there's some backpedaling by the funds in regard to the recent commodity bull-run. Moral of the story, I like the thought of reducing risk and banking profits on the long-side. We've been extremely bullish the past few weeks and it's paid off handsomely, no need to press our luck.

As a spec I continue to stick with the same game plan I've had the past few weeks..."buying the breaks". The sell-side players are all licking their wounds on the sideline and may not have the dry-powder or stomach to take another swing, especially with the political uncertainties still brewing in Brazil, major quality concerns surrounding the Argentine beans, and an entire U.S. growing season ahead of us.

Lets not forget we also have a major bullish wild-card in the deck by the name of "La Niña". Yes, we could see some bulls take profits and few bears try to take some quick jabs, but I still can't see big-money players betting aggressively on the short-side or exiting their long positions until more certainty is known regarding the major "what if's" mentioned above: Brazilian politics; Argentine quality; U.S. weather.

Be smart and continue doing your best to listen to the "music" and not all the old-school "noise". In today's world you have to make certain you're dancing to the most popular song. Just because you don't like it or don't understand it doesn't mean it's not happening. I think we eventually go even higher!

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