January 13, 2004
CBOT Grains Seen Sharply Higher On USDA Cuts
Grain and oilseed futures at the Chicago Board of Trade are expected to open stronger Monday on the heels of bullish crop reports from the U.S. Department of Agriculture, analysts who participated in the exchange's press briefing said via telephone.
The fact that the USDA cut 2003-04 production for corn, soybeans, and also cut new-crop winter wheat seedings by 3% - much more than expected - has fueled sharply higher calls across the CBOT agricultural trading floor.
Corn futures look to open 5-10 cents a bushel higher, soybeans are expected to open 15-20c higher and wheat futures are seen up 7-10c, according to Joe Victor, director of marketing at Allendale Inc.
In January, the USDA estimated U.S. corn production at 10.114 billion bushels from 10.278 billion in December, lower than what the trade had expected.
Likewise, soybean production was trimmed to 2.418 billion bushels from 2.452 billion in December and also lower than trade expectations.
U.S. ending stocks for soybeans were unchanged from December but still very low at 125 million bushels. Corn ending stocks dropped to 981 million bushels from 1.299 billion in December. Wheat ending stocks edged lower to 559 million bushels compared to 583 million in December.
The USDA also issued its quarterly grain stocks report, pegging corn stocks at 7.945 billion bushels, up from 7.638 billion in the USDA's Dec. 1, 2002, report but lower than the average trade estimate of 8.201 billion.
Soybean quarterly stocks came in at 1.686 billion, down from 2.114 billion in the Dec. 1, 2002, report but also lower than the average trade estimate of 1.750 billion.
Quarterly wheat stocks were 1.521 billion, down from 1.320 billion in the Dec. 1, 2002, report and also higher than the average trade estimate of 1.509 billion bushels.
The old grain-market adage, beware the eyes of March, could be due for a change now that there have been three consecutive surprises in the January crop reports. "I now say, beware the eyes of Jan. 12," said Dick Loewy, president of Doane Agricultural Services, who also participated in the briefing following the crop reports.
"You've got obviously a bullish report across the board," he added.
Improved corn usage, in addition to lower production, as well as lower soybean production, were bullish for the market. The "surprise" in lower 2004 winter wheat seedings was also an upside catalyst for prices.
"So obviously we just continue to see tighter stocks, both worldwide and in the U.S., across the board," Loewy said, adding that the most significant number in the report was the reduction in world corn stocks to 67.49 million metric tons from 74.24 million tons in December.
"That's a real critical figure" and the lowest in about 25 years, he said.
Expected purchases of U.S. corn by China, higher domestic use and ethanol production should keep corn futures well-supported in the coming months. "Certainly we've put the lows in on corn for this year for the next three, four or five months, and is going to certainly spur a lot more corn plantings than perceived by USDA," Loewy said.
Additionally, farmers may plant significantly more corn this year after low soybean yields disappointed many producers, he added.
Old-crop corn should rise to $2.75-$2.85 on the bullish report, Loewy noted.
On wheat, the drop in winter wheat seedings was due partly to the enrollment in the Commodity Reserve Program, which will result in higher corn and sorghum acreage in Kansas, Texas and Oklahoma, Loewy noted.
Victor said the market hasn't seen seedings this low since 1999 when 43.35 million acres were planted.
On the lower seedings, U.S. wheat prices could rise to over $4.00 a bushel next year "if you don't get the proper moisture," Loewy said.
The next two or three months could be the last opportunity for old-crop prices to drop to $3.40-$3.50 in order to spark more Chinese demand, Loewy said. "The world supply on wheat will take over unless we get extensive Chinese demand."
The world wheat crop could be potentially record-breaking on favorable moisture in India, as well as improved crops in Pakistan, Turkey and north Africa, Loewy noted.
The drop in world corn and wheat ending stocks combined is noteworthy and now sits at just 194.8 million metric tons compared to 266.27 million tons one year ago, Allendale's Victor said.
On soybeans, the analysts agreed that with a reduced U.S. crop endings stocks would likely be left at 125 million bushels. "So what you do is ridiculously raise exports 10 million bushels, Loewy noted.
Victor said he expected ending stocks near 103 million bushels and said that the USDA is "projecting a false sense of security" in its estimate, based on higher usage in both exports and crush.
Loewy said the soybean market still hasn't seen a decline or rationing that was supposed to take place. "At the rate we're going, we'll certainly run out of beans in May."
However, the arrival of the large South American soybean crop will likely slow demand for U.S. beans, he added.
Initial momentum from the lower crop production should carry soybeans to the $8.25-$8.50 level, Loewy said.