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A rarity: USDA report sparks broad rallies

Corn futures prices now have a strong case for getting back above $4.

USDA released its quarterly stocks report Wednesday, sparking a rally in soybeans, corn and wheat (full story here).

There was something good for everyone in this report, which rarely seems to happen.  Perhaps most surprisingly, corn stocks were pegged at 1.995 billion bushels, well below the trade average. This caught many traders by surprise because it came in roughly 125 million bushels below the lowest trade estimate.  This was 10% below where we were last year at this time. 

This was what farmers needed, although it would have been better to have this information six months ago. When stocks fall below 2 billion bushels, we can no longer say that corn inventories are burdensome. We couldn’t say that just a couple months ago. 

That doesn’t necessarily mean stocks are low, but it does give bullish traders more ammunition. 

Futures prices now have a strong case for getting back above $4 per bu. The slightest hiccup in this season’s yield results could continue to excite the market. December corn has broken above its recent high of $3.79. The last time we were at these levels was mid-March so it has been a long time coming.

Soybeans lead rally

The soybeans led the rally today, trading up 40 cents at one point. 

USDA pegged soybean stocks at 523 million bushels, roughly 50 million bushels less than the trade average but still within the average trade range.  That 500 million bushels isn’t exactly low when taking the last decade into context. However, we were over 900 million bushels at this time last year, so we have almost cut them in half in a short amount of time. 

This should help solidify $10 bean futures for a while. 

Our beans are still priced competitively right now as they are approaching $12 per bushel in Brazil, although China has bought up almost all of their remaining inventory. It would be nice if they would now do the same for us now, regardless of any trade agreements. 

If you didn’t get any sales made on the rally earlier this month, it appears you will now get another chance.

Wheat prices soar

Wheat stocks took a similar approach as overall inventories reached 2.159 billion bushels.  This was at the bottom of the range of estimates and over 80 million bushels under what the trade had expected. This was enough to send wheat prices soaring.  The high so far for this year in December wheat was $5.99 set back in January. In fact, we are trading at the top end of the range for the last 5 years. 

The market has clawed its way back roughly a dollar before reaching its low of $4.75 from only a couple of months ago.  

What about basis?

We have known for a while that old crop stocks were tight enough to improve basis levels ahead of harvest. Today’s report should continue to keep basis levels firm. Since last month we have been saying how our perception of this year’s crop production has shifted, making us want to store as much as possible looking for continued market rallies. 

Today’s report further solidifies that approach as we will look for winter rallies before we price remaining 2020 crop.

Matthew Kruse is President of Commstock Investments.  He can be reached at 712-227-1110 or by email at [email protected].
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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