Drought in the southwestern U.S. Plains is expected to focus traders on hard red winter wheat numbers in the U.S. Department of Agriculture’s next crop production report due out Friday.
“The trade currently looks for about 780 million bushels, which is above the 2013 level but well below a 10-year average of nearly 900 million bu.,” said Terry Reilly, senior commodity analyst of Futures International in Chicago, during a CME Group webcast on Thursday.
“So anything under 780 million bu. could have a potential impact on overall winter wheat production and also all wheat production for the United States,” he said.
Once USDA works out its new-crop balance sheet for wheat, “we could potentially see the ending stocks for 2014-15 show a fifth consecutive year of decline,” leading to a long-term bullish market, he said.
“I think it’s a given the USDA gives us a friendly production number in terms of the market. There’s no way they’re going to go out and put out a trend line yield or anything like that,” said Joe Vaclavik, president of Standard Grain in Chicago, on the same webcast.
The question is whether the crop will catch timely rains, he said, and what higher prices will do to wheat demand.
Vaclavik said he was cautious going into the report. “We’ve seen these prices essentially do nothing but run higher since the beginning of the year and I don’t know if we’re going to run out of steam or turn this thing into a much bigger bull market.”
Soybean balance sheet ‘a mess’
The soybean balance sheet is “just a mess,” Vaclavik said. “We’ve already booked more than USDA projects in regards to exports.”
“We actually need to see net cancellations every single week for the marketing year between now and the end of August in order to hit that projection and I don’t think we’re going to see that,” he said.
The trade isn’t looking for a change in the overall soybean carryout number, said Reilly.
“We do think that exports are overstated at this moment by USDA and (expect) crush to be understated,” he said.
Reilly said he expects USDA to leave import projections at 65 million bushels and is looking for USDA to knock down carryout stocks 10 million bushels.
“If that’s realized we could see a little bit of bullish undertone in the market,” he added.
Vaclavik questioned the logistics around importing soybeans. “You could certainly paint a very, very bullish picture,” for old-crop beans, he said.
The average trade guess of 300 million bu. for new-crop beans seems very high given demand, he said.
“Granted we’re going to have much bigger acreage here in the U.S. this year but I just have a feeling that demand for those $12 beans, similar to $4 corn, is just going to be a lot better next year than maybe we expected at this point in time,” said Vaclavik.
Trade looking for corn stocks to drop
The trade will be looking for corn carryout projections to decline and better export and ethanol numbers from the USDA report, said Vaclavik.
The question is whether demand will keep increasing despite the “drastic” price rally in the last four or five months, he said.
Export sales and shipments are very strong, he added. “We’ve already essentially booked 100 per cent of our corn sales for the marketing year.”
Much of the trade was roughly 15 million bu. below USDA’s current ending stocks estimate, Reilly said, but added he thinks USDA was understating exports by at least 50 million bu., and corn for ethanol by 50 to 75 million bu.
“So there is an incentive for USDA to possibly draw down stocks by 100 million bu.,” said Reilly.
Reilly will also be looking at global stocks for new crop in tomorrow’s report because of tight carryout in global corn stocks.
“Any indication that any stocks for new-crop would fall below the previous-year level would be a long-term bullish scenario for corn,” Reilly said.
Beware the whipsaw
Vaclavik warned USDA reports are as much a trading event as a fundamental event.
“Beware of the whipsaw that may occur in these markets on the report’s release. Where we trade initially after that report is not necessarily always where we close or the direction we might head. There is a lot of risk associated with these reports.”
— Lisa Guenther is a field editor for Grainews at Livelong, Sask. Follow her on Twitter at @LtoG. Joe Vaclavik can be followed on Twitter at @StandardGrain.