The December USDA Supply and Demand report focuses more on demand than supply, but it was a supply number that triggered a bearish reaction in the soybean market. The USDA left their estimate of soybean production in South America unchanged. Arlan Suderman, with Waterstreet Solutions, told HAT this triggered a soybean market selloff, “USDA raised its Argentine production estimate by 1 million metric tonnes or 36.7 million bushels, which is justified considering the anticipated shift of acres away from corn. However, USDA chose to leave its Brazilian production estimate unchanged, which is a matter of significant debate in Brazil currently, considering the favorable crop growing conditions at this time.” He added that computer traders pushed January soybeans briefly to $13.53, above significant resistance at $13.50, but the move could not be sustained. That led to heavy chart selling, aided by some producer selling on the rally. Double-digit losses held above Monday’s low. Tuesday’s losses were modest, suggesting that this market still has strong support.
Overall the corn numbers looked positive with a 95 million-bushel cut in ending stocks to 1.792 billion bushels, below trade expectations of 1.871 billion. But technical factors and a sharp selloff in wheat pulled corn futures lower, although they did recover somewhat on the close. Suderman said USDA increased corn imports by 5 million bushels as Canadian supplies flow south across the border. It also recognized this year’s active ethanol usage by increasing industrial demand by 50 million bushels, while doing the same for exports as well, “I believe that the adjustments are justified. I just didn’t think that USDA would make that big of adjustment this soon, based on its track record. While friendly, the adjustment still leaves stocks at a comfortable 50-day supply, up from 27-day supply the previous year. Even so, that still represents a 1.942 billion-bushel increase in demand.”
Suderman said the real bearish news was in the wheat, “USDA acknowledged larger Canadian supplies, but also increased our wheat imports by 10 million bushels. The bottom line was a 10 million-bushel increase in domestic stocks, rather than the cut that I, and much of the rest of the trade, expected.” This prompted double digit losses in wheat prices on Tuesday.
Suderman believes, however, that despite the bearish reaction, going forward we will see corn and soybean prices recover, “The real long term driver is the shortage of meat in Asia. It is going to take corn, soybeans, and wheat to produce this protein and right now we do not have the supply to meet that demand.” He expects the soybean market to be the most active in the near term, but says prices will remain within a range marked by a top of $13.50.
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