Price rise short-lived after friendly U.S.D.A. data

by Ron Sterk
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U.S. winter wheat planted area chart
U.S. winter wheat planted area

WASHINGTON — Wheat, corn and soybean futures posted solid gains after a bevy of U.S. Department of Agriculture reports released Jan. 12 showed declines in 2015 U.S. corn and soybean production and the second lowest winter wheat seedings area since 1913. But price increases faded as the week progressed.

Wheat futures closed about 10c to 18c a bu higher for the day, corn futures about 3c to 5c higher and soybeans about 10c to 13c higher. Despite the gains, wheat futures remained about 10% below their October 2015 highs, coming off contract and multi-year lows just a week earlier. Report-day price gains for wheat and most corn futures already were gone two days after the reports, and analysts expected little if any long-term impact on prices because of ample domestic and world grain and oilseed supplies.

The reports included the first estimate of winter wheat planted last fall for harvest in 2016. The Winter Wheat Seedings report indicated plantings at 36,609,000 acres, down 7% from a year ago and the second lowest since 1913 after 36,576,000 acres in 2010. Winter wheat plantings have declined 44% since peaking at 65,547,000 acres in 1981.

“By far the biggest market mover was the winter wheat seedings number,” said Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, Inc., Naperville, Ill., noting that the U.S.D.A. estimate was down about 2.9 million acres from 2015 while the trade expected a decrease of only about 200,000 acres. The acreage decrease could mean 125 million bus less wheat, he said, but that wasn’t necessarily long-term bullish.

“It just makes weather more important,” Mr. Meyers said.

The question is why did farmers decide to plant so much less wheat, Mr. Meyers said, was it low prices for wheat or switching to other crops? He said he thinks it’s mostly the result of switching to other crops, although that won’t be known until the U.S.D.A. Prospective Plantings report is released March 31. He noted that “prices for all crops are not very good.”

In its annual Crop Production 2015 Summary, the U.S.D.A. estimated corn production at 13,601 million bus, down 52 million bus from its November estimate, down 4% from record production of 14,216 million bus in 2014 but still the third largest crop on record. Soybean outturn was estimated at a record 3,930 million bus, down 51 million bus, or 1%, from November but up 3 million bus from 2014.

The U.S.D.A. corn and soybean production and wheat seedings numbers all were below the average of trade expectations, with the soybean and wheat numbers even below the full range of trade estimates.

The corn and soybean production estimates were “mild” surprises, Mr. Meyers said, with the 51-million-bu reduction in soybeans a bit more significant because of possible losses in production in Brazil due to recent dry weather. But for corn, weak demand overshadowed the reduction, he said.

Despite the bullish numbers in the seedings and crop reports, other reports tended to mitigate price gains, showing still ample supplies of wheat, corn and soybeans both domestically and globally.

In its quarterly Grain Stocks report, the U.S.D.A. pegged Dec. 1, 2015, stocks of wheat in all positions at 1,738 million bus, up slightly from a year earlier, corn at 11,213 million bus, also up slightly, and soybeans at 2,715 million bus, up 7%. The U.S.D.A. number for wheat was above the average of trade expectations, while the corn and soybean numbers were slightly below pre-report trade averages.

In its monthly World Agricultural Supply and Demand Estimates, also released Jan. 12, the U.S.D.A. forecast carryover of wheat in the United States on June 1, 2016, at 941 million bus, up 3% from 911 million bus forecast in December and up 25% from 2015. Carryover of corn on Sept. 1, 2016, was projected at 1,802 million bus, up 1% from 1,785 million bus in December and up 4% from 1,731 million bus in 2015. Soybean carryover on Sept. 1 was projected at 440 million bus, down 5% from December but up 130% from 191 million bus last year. Both U.S.D.A. wheat and corn numbers were above the average of trade expectations while the U.S.D.A. soybean number was below.

Globally, grain and oilseed supplies remain ample, despite some reductions from December forecasts. The U.S.D.A. forecast 2015-16 wheat ending stocks at 232.04 million tonnes, up 1% from 229.86 million tonnes in December and up 9% from 212.79 million tonnes in 2014-15. Corn ending stocks were forecast at 208.94 million tonnes, down 1% from 211.85 million tonnes in December but up 1% from 207.23 million tonnes the prior year. Global soybean ending stocks were forecast at 79.28 million tonnes, down 4% from December but up 3% from 79.93 million tonnes in 2014-15. The U.S.D.A.’s global wheat ending stocks forecast was above the average trade expectation, while the corn and soybean forecasts were below average expectations.

“The (supply) numbers are still so big for corn and soybeans that there should be very little price change from before the reports,” Mr. Meyers said.

In addition to pressure from ample grain and oilseed supplies and weak demand in some cases, Mr. Meyers noted outside market influences remained “pretty negative,” including the strong U.S. dollar, China’s economic slowdown and low crude oil prices.
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