Market Perspectives April 11, 2014

Chicago Board of Trade Market News

Outlook: USDA estimates for world agricultural supply and demand were published on Wednesday April 9 and the data was somewhat bullish for feed grains. The estimated ending stocks for U.S. feed grains were reduced because of reductions in corn and barley. The most bullish surprise to market participants was a substantial 125 million bushel increase in the estimate of U.S. corn exports for the present season. That increase in U.S. corn exports caused the ending stocks estimate to decrease by the same amount, which USDA now projects to be 1.331 billion bushels of corn when the present 2013/14 season is completed at the end of August. Note that these U.S. corn ending stocks are well below the prior projections of 2 billion bushels that many analysts were giving back in November. Consequently, the price rally in corn contracts from January to the present makes sense.

The ending stocks estimate of U.S. barley was reduced by 7 million bushels, from the March estimate of 90 down to the new April estimate of 83 million bushels. This revision down happened because of a 5 million bushel reduction in estimated imports and a 2 million bushel increase in exports. As well, there was a sizable 20 million bushel increase in the estimate for U.S. sorghum exports, from 160 to 180 million bushels, but that change was offset by a reduction in domestic use that was based on the higher than expected quarterly stocks estimate of sorghum, which was published in the March 31 Grain Stocks report.

It is interesting to note that even though USDA increased their global corn production, the estimate for global ending stocks of corn declined slightly for this season. Corn production estimates for Brazil, Russia and South Africa increased for a combined total of 6.4 MMT and was entirely offset by increased global corn usage.

USDA’s revised estimates for global feed grains are by themselves more bullish, but corn futures contracts in the short run could come under the influence of other more negative factors. More bearish factors that could influence near-term corn prices are:

1. Speculators have already built substantial long positions in corn and soybeans and need to do some profit taking.
2. Chinese crushers are anxiously attempting to get out of some South American soybean purchases and a sell-off in soybeans could influence corn.
3. Wheat data in the latest WASDE was also somewhat bearish and could have some influence on corn.
4. Any sell-off in stocks could also have some indirect influence.
5. Weather in the U.S. Corn-belt is forecast to improve.
6. South American corn is becoming increasingly available to the global market.
7. Lastly, U.S. farmers are likely to consider items such as the proceeding factors and uniformly decide it is time to sell some more of their 2013/14 feed grain inventory.

The outlook is that corn contracts could experience a near-term price setback and then be followed by another rebound of some sort going into corn pollination. The extent of any pre-pollination rebound will be heavily influenced by weather.