Thursdays monthly USDA crop report gave us a lot of volatility off a few small adjustments that showed a turn over in trading priority. The market traded the ending stocks numbers as harvest and production is largely known. Were in a demand driven market now and with ending stocks coming in under pre-report estimates, while production came in over pre-report estimates, followed by a sharp rally in corn and beans, it suggests the market mindset is moving towards price rationing and higher prices. Note, one report, on one day, doesn't make a market trend. So the start of the new week will be telling to the near term trend.
Next week is the third week of the month. The first eight months all rallied into the monthly crop report followed by profit taking after into that third week. Corn didn't rally the days head of this report but were higher since the quarterly stocks report September 28 by $.70. Much of the rally was short covering so longs to take profits are limited. Beans were down about $.40 this week prior the report’s release and down 2.50 the last 30 days, so no longs there either, meaning a week three break would have to come from new sellers.
Let’s cover the report. USDA estimated corn production at 10.706 billion bushels down 21 million bushels from last month, but over the average pre-report industry average of 10.598. Ending stocks, the amount of grain expected to be left overcome the start of next year’s harvest and new marketing year September 1, came in at 619 million bushels. That was under the month prior of 733 and pre-report estimates of 645. None of the two reports saw anything outside the range of pre-report guesses. The sharp rally to near the $.40 limit came as traders saw demand and usage offsetting production that was bigger and stocks are already dangerously low. Here is corns problems. The lower ending stocks came from lower production. Ethanol and feed usage were left unchanged and exports lowered by 100 million bushels. Now that harvest is nearing its end, we won't have production shortfalls to drop ending stocks, therefore that leaves only demand to drive us higher. Yet demand is our weak spot. Unless demand enters, because corns is available now, it will then take lower prices.
Last year we saw corn drop two dollars in September on harvest and weak demand with a one dollar October rally on a demand surge. This year corn has dropped one dollar but were 1.80 higher than last year. Bean production estimate was 2.860 billion bushels versus 2.634 last month and over the pre-report estimate of 2.770. Ending stocks were 130 million bushels, up from 115 last month, but under the pre-report estimate of 134.
Like corn, beans to saw traders heavily buying Thursday as usage or demand exceeded their pre-report thinking. It's important to note that report day trading is always off the report's comparison to the pre-report average estimate as the average estimate tells you how they were position going into the report. The days after the report, pricing is more off the entire comparison including the month prior and year prior comparisons. Beans increase in production was largely offset by the increase in export prospects and a larger crush. We still have almost 40% of the crop to be harvested, so larger production number on next month report might be expected but traders long term will expect demand to outpace production in November and December as the US will continue to be the world's sole port to buy beans from until late February when South American crops come in.
November and December are set to be potentially very good pricing months. Wheat ending stocks were 654 million bushels, up from the pre-report estimate of 627 and under last month. 698. Friendly but not bullish as 400 million bushels is considered tight stocks. Friday morning we got our weekly export sales report. Wheat exports for future shipment were 279 thousand metric tons versus the two prior weeks of 307 and 426. It's weak without any large buyers on the list. Only smaller feed quality wheat buyers were in. Russia failed to offer any of their wheat for sale and could signal their finally out of export supplies as expected due to drought. This should lead to better US exports in time.
Corn sales were a marketing year low 4 t.m.t. versus the two prior weeks of 326 and 400 t.m.t. Classic price rationing. Last year each week in October, we sold over 1 million metric tons. Now the first two weeks in October this year are averages 165 t.m.t. Lower prices are needed to draw in importers. Beans were 500 t.m.t. versus 1.296 million metric funds last week. In part it was importers waiting for Thursdays USDA report for direction. China was in for 227 t.m.t. of the total versus 1.025 m.m.t. last week.
Conclusion, the quarterly stocks report and yesterday’s USDA October monthly crop report all added to our bullish long-term supply side fundamentals and a stocks to use ratio number back to 1974. Clearly we have some measurable rallies that will occur over weather and planting issues here and abroad but near term we need to find a price low enough to find demand for corn. Corn prices have exports at a standstill. Unless index funds enter buying futures on the long term bullish news, we may have to fill the gap back to 6.75 to find that export business. Beans are a little different in that stocks are tight but demand remains overall very good. China recently sold its remaining bean reserves and will need to buy more from the US in November and December. Yet we can still see a seasonal break to fill the chart back to 14.85.
Here's your technicals. December corn support is 7.35, 705 then 6.75. Resistance is 7.85 then 8.00. November bean support is 15.05 then 14.85 with resistance 15.70. December wheat. Support is 8.55 then 8.15 with resistance 8.90. These technicals were as of Thursday night coming into entering Friday's trade.
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