October 13, 2006

 

US corn, soy, wheat futures seen higher after USDA report
 

 

Thursday's US Department of Agriculture crop production and supply/demand reports were friendly for Chicago Board of Trade corn and soybean futures, and a reduction in Australia's wheat crop is expected to support wheat  futures, traders and analysts said.

 

Corn futures are forecast to open 3-5 cents higher on the smaller than expected corn production estimate, with soybeans also expected to open 3-5 cents higher as production was forecast lower than the average trade guess.

 

CBOT wheat futures are seen opening 5-10 cents higher on the reduction in Australia's wheat crop and a small reduction in 2006/07 wheat ending stocks.

 

USDA estimated US 2006/07 corn production at 10.905 billion bushels below the 11.114 billion estimated by the USDA in August as well as the 11.144 billion average analyst estimate.

 

USDA said US corn production for 2006 was reduced by 209 million bushels on a lower harvested area and lower yield. Harvested area was lowered by 794,000 acres this month with the biggest reductions in Illinois, Nebraska and Ohio states.

 

The USDA pegged the 2006/07 corn yield at 153.5, below the 154.7 estimated in September.

 

The corn number was a surprise and the market should open higher, a floor analyst said. However, the market has rallied sharply over the past several sessions and it could be hard to extend the rally much further, he added.

 

"The report was very bullish for corn, with a sub 11 billion bushel crop and sub 1 billion bushel carryout estimate. Normally I would say the market would open significantly higher, but prices are already pretty high, and I don't know how much higher we can go. One thing for sure, at a minimum we know what corn's harvest low is at this point," said Jack Scoville, analyst with Price Futures Group in Chicago.

 

Ending stocks in 2006/07 were pegged at 996 million bushels, down 224 million bushels from the September report and well below the average trade guess of 1.207 billion. The USDA decreased feed and residual use by 25 million bushels, reflecting higher prices and the smaller crop.

 

"We're down now to less than one-carryover in terms of usage for corn. We not only have very strong near-term demand, but obviously have a major issue to deal with next year, in terms of supply. It's going to be a wild winter," said Rich Balvanz of Ag Management Services.

 

The USDA raised China's corn production by 3 million tonnes to 141 million, and reduced 2006/07 world corn ending stocks to 89.54 million tonnes from 92.3 million in September.

 

US 2006/07 soybean production was pegged at 3.189 billion bushels, above the 3.093 billion projected in September but below the average analyst estimate of 3.213 billion.

 

USDA noted US 2006/07 soybean production is forecast at a record 3.189 billion bushels, up 96 million from September on higher yields and increased harvested area as planted and harvested area was increased by 0.6 million acres.

 

USDA increased 2006/07 ending stocks by 25 million bushels from the 530 million bushels estimated in September but below the average analyst guess of 588 million bushels.

 

"I can't imagine that soybean prices won't be drug up, along with corn and wheat, especially considering the fact that the carryover was over 30 million bushels below the average trade estimate," Balvanz said.

 

In the 2006/07 balance sheet, the USDA raised US exports by 20 million bushels and the crush by 10 million bushels.

 

The USDA left its 2006/07 production estimates for Brazil and Argentina unchanged from the August report, and kept China's soybean production at 16.2 million tonnes.

 

USDA estimated 2006/07 wheat ending stocks at 418 million bushels, 11 million bushels lower than the 429 estimated in September and below the average analyst estimate of 437 million bushels. Exports were raised by 25 million bushels reflecting tighter world supplies.

 

The USDA reduced 2006/07 world wheat ending stocks by 7.1 million tonnes to 119.3 from the 126.4 million estimated in September.

 

Australia's crop production was reduced by 8.5 million tonnes to 11.0 million, European Union wheat production was estimated at 117.89 million tonnes, down from 119.18 million in the September report, and China's 2006/07 crop was trimmed to 103.5 million tonnes from 105.0 million in September. USDA kept its estimate of Argentina's wheat crop at 13.25 million tonnes.

 

"The wheat numbers were friendly, with the cut in Australia's crop and reduction in the world carryout. However, the market has priced in a lot recently and how far prices can go off the report is the question," said Scoville.

 

The reduction in Australia's crop confirms what private forecasters have said recently, a CBOT floor trader added.