The USDA quarterly stocks report did infuse some confusion Tuesday when traders saw the large drop off in soybean stocks. Both corn and wheat stocks came in above trade expectations, bearish for those markets but not overly significant, according to analyst Arlan Suderman at Water Street Solutions.
“But when you look at soybeans, that’s what the trade is trying to sort through now,” he told HAT moments after the report release. “USDA pegged September 1 stocks, which would be ending stocks for last year at just 92 million bushels. No the cash market has never allowed supplies to get tighter than a 16 day supply. That’s about 4.4% of annual usage. But USDA is saying those supplies actually dropped to about 2 ½ percent of annual usage, which is a 9 day supply, and that’s with them even boosting last year’s production estimate by about 69 million bushels.”
To balance things out Suderman says the agency did some quick math by boosting last year’s harvested acres and yield. Does that math even matter with an expected big crop being harvested right now?
“I don’t think it does in light of the big crop,” he said. “If we were looking at a short crop this year, then this would matter a great deal, but since we’re looking at a big crop and the trade is anticipating a significant increase in USDA’s yield estimate on October the 10th, I don’t think it does matter a great deal.”
Suderman added within 10 minutes of the release traders were coming to that conclusion after an initial uptick in the soybean market.
“That’s where there’s overall a bearish bias to the reaction that we’ve seen thus far, and I think will continue on that downward trajectory.”
And despite the tight stocks scenario USDA reported for soybeans, the market did trade lower, closing the session just a few cents from the day’s low and well below the high.
Suderman is Senior Market Analyst at Water Street Solutions and can be heard on the HAT Midday Edition podcast each Tuesday.