The USDA threw the market for a loop today. It didn’t end well for corn and wheat futures. Some would describe the report as fake news, and that is being “nice”. Real nice. The USDA released a negative corn acreage figure and friendly soybean number. Wheat acreage was neutral. Stocks came in under the trade guess, but didn’t mean much given the bearishness of the corn acreage estimate. The market reaction was wild. High frequency trading pushed corn prices up double digits and then down double digits in a blink of an eye. We couldn’t pull the report up fast enough to see if it was bullish or bearish. For a second, it was both! We will give the Bears this inning, but the game is far from over.
By the closing bell, the damage was done. Corn futures finished the day 20 cents lower, but off session lows by 4-5 cents. (July futures have no limits during delivery period.). Charts look awful; daily, weekly and monthly. Soybeans closed 11 cents higher, but well off session highs. Although wheat numbers were neutral, prices followed corn lower. Both Chicago and KC wheat futures were 20 cents lower. MPLS prices fell 7 cents. Up until 11 am, prices were looking pretty decent for the week. Today’s post 11 a.m. move sent corn futures 22 cents in the red for the week, but allowed a 4 cent gain on the week for soybean futures. Wheat was a mixed bag. Chicago and KC fell 3-6 cents, and MPLS futures were higher.
The Dow closed up +73 points at 26,599. The Dow has rung up the best return for the month of June since 1938. Very impressive and very scary, at the same time. Oil prices sank over $1 lower today. Oil is trading around $58/barrel. The dollar index was slightly lower.
Tonight is the big meeting between President Trump and China’s President Xi Jinping at the G-20 meeting in Japan. In the past 24 hours, China has bought 20 mln bushels of US soybeans. There is little indication that China really needs these soybeans for their reserve or immediate needs. The sale is a gesture of good will or “carrot” before tonight’s meeting. Beans will likely be rolled forward to the next marketing year or cancelled.
Let’s get to the reports.
The Stocks report was actually friendly as all numbers came below the trade guess. The numbers weren’t wildly bullish, but depending on how the USDA vets demand prospects – old crop carryout numbers should decline in the July report. Lower corn stocks suggest feed usage this year is greater than last year. But, again that would be a logical thought process given RECORD animal numbers this year. USDA does not always use logic unfortunately.
Here is what caused all the pain today. . .
Notice how the USDA actual numbers weren’t even in the trade’s range of estimates. What today’s report showed was the producer’s intentions plus his PP acres on the first of June. Any intention shifts, PP acres or additions after the survey were NOT included. What we have is an incomplete report and the USDA knows it. The USDA will do the largest resurvey on record – 14 states and 4 major crops. The kicker is that the results will not be released until the August report. Between now and then, the USDA can elect to use today’s acreage estimates or use their own for the July report. They went “rogue” a couple of weeks ago by shocking the trade and reducing corn acreage over 3 mln. Will they do rogue 2.0? The USDA will incorporate the FSA certification numbers at the end of July and each month thereafter. The FSA and USDA numbers do not have to match, and they usually don’t. What a great system.
Clearly something is wrong with the maps below. Granted, USDA likely picked up corn acreage issues in the Dakotas (earlier Final plant date). But, WCB acres were down 1.1 mln from March and ECB acres were down 700k. Midsouth acres were up 450k. The majority of the bean acreage decline came in the WCB at -2.95 mln. The ECB bean acres were down 1.050 mln. The top map is corn changes from March, and the bottom is soybean changes.
The USDA corn estimate was 5 million acres higher than the trade’s guess. The USDA soybean acreage was 4 million BELOW the trade guess. Bottom line; the trade believed the numbers today as evidenced by price reaction. Do we believe it? No, there will be changes in the future. Meanwhile, today’s fiasco has taken the wind out of the Bull’s sail. As we have mentioned before – it is tough to kill the crop in July without a drought. The trade has a hard time trading too much water or maturity of the crop. We will need to exercise patience and take the long view in the next few weeks.