Market Perspectives March 14, 2014

Outlook:USDA published their monthly update of World Agricultural Supply and Demand Estimates (WASDE) on March 10. In relation to pre-report trade estimates, USDA’s reduction in U.S. corn ending stocks to 1.456 billion bushels for the present 2013/14 season was below the average of estimate of 1.488 billion bushels and was also below USDA’s prior February estimate of 1.481 billion bushels. This further 25 million bushel reduction in ending stocks is in reaction to a persistently strong export pace for U.S. corn. By itself, this factor was moderately bullish. However, USDA’s March reduction in U.S. soybean ending stocks was not as large as market participants had expected, and corn contracts seemed to fall under the influence of an aggressive sell-off in soybeans after the WASDE report was released. The selling in soybeans and corn happened in part because speculators had built up large long positions prior to the report and seemed to be uniformly waiting for an opportunity to take some profits after the report. After the report, the anticipatory sellers far outnumbered new buyers and the price setback in soybeans temporarily dampened buying enthusiasm in corn.

It took Tuesday and Wednesday before the corn market was able to fully recover all of the losses that took place in Monday’s price setback. Throughout this week the spread between November 2014 soybeans and December 2014 corn prices continued to narrow from the peak that had occurred in mid-December of 2013. Prices action is attempting to encourage farmers to plant more corn this spring, but whether that encouragement has come a little too late or not will become evident when USDA publishes their Prospective Planting report on March 31. On the same day, USDA will also update the market about the amount of on-farm and off-farm stocks that exist after a half year of usage.

Monday’s WASDE made no alterations to the balance sheet for U.S. sorghum or barley for the current 2013/14 season. Australia’s barley production was increased and this partly offset a reduction in Australian sorghum production due to continuation of hot and dry weather conditions. The estimate for Chinese barley imports was increased. Chinese demand for U.S. sorghum is expected to be in direction competition with Mexican buyers. As well, the balance sheet for U.S. oats declined because of a 10 million bushel reduction in imports from Canada due to logistical problems. These various factors combine to imply that global feed grain supplies are sufficient but not burdensome. As a result, the outlook is that while corn basis has recently weakened in some areas of the United States, U.S. feed grain prices are expected to remain sensitive to outside market factors for the next few weeks as the market anxiously waits for more data to become available.