August 13, 2007

 

CBOT Traders: USDA report made soy, wheat futures bullish; neutral for corn

 

 

Traders on the Chicago Board of Trade (CBOT) agricultural floor said Friday's US Department of Agriculture (USDA) crop data was supportive for the CBOT soy complex and wheat futures, neutral for corn futures.

 

Soybean futures were called to open 3 to 5 cents higher Friday (August 10), corn futures 1 to 3 cents lower and wheat up 2 to 3 cents a bushel.

 

CBOT traders said the soybean production number is friendly because many in the trade had been anticipating a modest increase in production, but the USDA kept yields and output at the same trend line levels reported in July.

 

The USDA's corn data was seen as neutral to the market, with data not shying to far away from the average of trade estimates, traders said. An above average yield estimate of 152.8 bushels an acre was seen applying mild pressure.

 

The USDA's wheat data was taken with a supportive tone, with traders looking at lower production and world inventories as underpinning features, traders said.

 

However, traders said opening calls would be tough, with the exposure of outside equity markets expected to influence market activity across commodities. The soybean figures are supportive, but how much of that is priced in the market following recent gains opens the door for potential setbacks despite the USDA data, a CBOT trader added.

 

The USDA pegged 2007/08 soybean production at 2.625 billion bushels versus the average of trade estimates at 2.653 billion. Soybean yield is projected at 41.5 bushels per acre, unchanged from the July trend line yield. The projection was down 1.2 bushels from 2006's yield and below the average of trade estimate at 41.9.

 

However, some traders said this may be the lowest bean estimate of the season if weather conditions across the Midwest are favourable through August.

 

"The USDA didn't make any changes in soybean production and will usually make a small change. I'm sure they are waiting to see what the weather is in August, a key month. Soybeans might start higher on the 25 million bushel decline in ending stocks," said Brian Hoops, president Midwest Market Solutions in Yankton South Dakota.

 

The USDA estimated 2007/08 soybean ending stocks at 220 million bushels, down 25 million from July, and below the average of estimates at 247 million. The decline was a reflection of reduced carry-in supplies.

 

USDA trimmed 2006/07 ending stocks by 25 million bushels to 575 million. Exports were raised 10 million bushels. Crush was raised 15 million bushels reflecting stronger-than-expected domestic soybean meal disappearance and exports, USDA reported.

 

The USDA estimated the 2007 US corn crop at 13.1 billion bushels, up 24 percent from last year and 17 percent above 2005. Based on conditions as of August 1, yields are expected to average 152.8 bushels per acre, up 3.7 bushels from last year. If realized, this will be the second highest yield on record, behind the 160.4 bushel yield in 2004.

 

However, production will be the largest on record as growers intend to harvest the most corn acres for grain since 1933. Yield forecasts are higher than last year across the Great Plains where frequent rainfall during much of the growing season provided abundant soil moisture for filling the crop. Higher yields are also expected in the central Corn Belt and Delta where timely rains benefited the crop. Expected yields across much of the northern and eastern Corn Belt, Ohio Valley, Tennessee Valley, Southeast, and Atlantic Coast States are below last year as hot, dry conditions during much of the growing season reduced soil moisture supplies and stressed the crop, USDA said in the report.

 

"While the US corn production/stocks estimate was higher than the average trade guess, they were not higher by much, and that still keeps us in line for putting in an early harvest low. We could see some potential weakness up front, but eventually this market will focus on the demand side," said Arlan Suderman of Farm Progress Companies.

 

Corn ending stocks for 2007/08 are pegged at 1.516 billion bushels, above the average estimate of 1.511 billion. Carryout for 2006-07 was pegged at 1.137 billion, unchanged from the July estimate.

 

CBOT traders said the wheat numbers are supportive on the surface, with the production estimates coming in below the average of trade estimates.

 

The USDA projected the all-wheat crop at 2.114 billion bushels, below the average of trade estimates at 2.129 billion, but above 2006 output at 1.812 billion. The spring wheat crop was estimated at 500 million bushels, below the average trade estimate at 508 million bushels. The durum crop was pegged at 76.7 million bushels, slightly lower than the average trade estimate of 78 million but above the 2006 crop of 53 million bushels.

 

Global 2007/08 wheat production is projected 1.9 million tonnes lower this month as reduced production in EU-27, the United States, Canada, Turkey, and Brazil more than offset higher production in India and FSU-12. EU-27 production is lowered 1.7 million tonnes as persistent, heavy rain during harvest reduces yield prospects in France and Germany, and persistent drought and heat reduce yield prospects in Bulgaria, Hungary, and Romania.

 

"Wheat is not a supply-side issue. This is about extremely low ending stocks. They made the world ending stocks even tighter. I think they'll trade this report on wheat for about five minutes and they'll go to the demand side of the market," said Tim Hannagan, analyst with Alaron Trading in Chicago.

 

The USDA said US 2007/08 ending stocks for wheat are projected at 404 million bushels, above the average trade guess of 402 million, but below the July projection of 418 million.