Should the February WASDE Report Effect Planting Decisions?
While the release of the USDA’s latest World Agricultural Supply and Demands Estimates report on Tuesday had many hoping for an uptick in grain prices, the grain market decided to go lower by the day’s close, throwing many farmers and analysts for a loop.
Despite overall bullish numbers for domestic corn and soybeans, though less so for wheat, an expected record harvest in South America and projection of another record setting harvest in US fields this coming fall prevented the grain markets from reflecting those numbers.
Looking closer at the numbers, for US corn, the ending stocks estimate was lower than expected at 1.827 billion bushels. This is in large part thanks to a 75 million bushel increase in ethanol production. Lower gas prices have driven up demand for gas and ethanol, and have therefore kept the pace for ethanol production. Worldwide, the USDA estimated a 4.2 million metric ton increase in world corn demand, which offset the increased estimate of corn stocks modest production increases in Argentina and Ukraine more than enough to keep the world-wide report numbers for corn neutral to bullish.
For US soybeans, the US stocks estimate was lower than expected, at 385 million bushels. Similarly, the USDA’s estimate of world soybeans stocks was also lower than expected, at 89.26 million metric tons. This was aided by a 2.3 million metric ton increase the USDA’s estimate of world soybean demand. When these numbers are taken into account in light of pre-report expectations, they are neutral to bullish as well. However, traders took the record South American soybean harvest expected, and thus the markets reacted contrarily to what many expected based solely on the report numbers.
In wheat, the USDA’s report was bearish for both domestic and world supplies, with the domestic export numbers at 900 million bushels, down from 925 million bushels. This resulted in ending wheat stocks of 692 million bushels. Even though the USDA increased its estimate for world demand by 1.4 million metric tons, increased beginning stocks coupled with increases in production worldwide pushed estimates up more than expected, and wheat ended down 8 cents by the end of the day.
While some adopt a more pessimistic long-term view of the grain markets rallying, market analyst Bob Linneman of Kluis Commodities adopts a more sanguine attitude, and asserts that if crude oil begins an assent, grains will follow suit:
“Now that the USDA report has come and gone, I think grains have a chance to rally if oil can close above last week’s high of $54.24. The seasonal pattern for crude oil is higher through the first week of April. Although this pattern has not been accurate the past few months, if a rally is underway, then I want to watch the first week of April for an extreme to indicate that the seasonal pattern is back on track.”
Are you concerned about how the grain markets will affect your cropping decisions during the coming growing season? Contact a UFARM specialist; we are here to help.
Sources consulted: Caldwell, Jeff. “WASDE numbers fail to rally grains as prices slip into Wednesday.” Agriculture.com. Meredith Agri Media. 11 Feb. 2015. Web. 11 Feb. 2015. Hultman, Todd. “USDA Report Head Scratcher: Those are Bullish USDA Estimates?” DTN The Progressive Farmer. DTN. 10 Feb. 2015. Web. 11 Feb. 2015.
