This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
USDA elected to kick the can down the road once again with very few changes on the December supply and demand report that was released on Tuesday. Typically, the USDA does not make changes to U.S. crop size in December but sometimes makes changes to the demand side of the balance sheet and sometimes tweaks its South American production estimates. Last year, it surprised the market by reducing U.S. corn crop size, and with the missed reports and data from the government shutdown, there were some rumors it may start feeding in some changes on this report. But that was not the case. It left everything unchanged except for raising corn exports. That drops corn carryout to just barely over 2 billion bushels. The corn market reacted positively to the report. Most still expect USDA to further reduce U.S. corn production on the January report, but many believe the U.S. feed demand number is too high and is being left as “padding” so USDA can reduce the crop size and reduce feed demand to offset and leave carryout around 2 billion bushels.
The soybean market has been drifting lower from lack of big Chinese purchases. Soybeans seem to have their sights set on the gap on the chart left from late October, about 20 cents lower. China has been making steady purchases but just not of the size the market wants or expects. It is also worth the reminder that since U.S. beans are higher-priced than South American beans, any purchases are for political reasons. They are trying to buy some goodwill. If China comes in and makes some big purchases, the tide will quickly turn higher. If it does not, the 20 cents lower to fill the gap may not take long. There is still no weather story in South America to spark a rally yet, but they still have a lot of their growing season ahead. Beans are trying to build a support level, but we will see if it can hold.
The January USDA report will be a big one. We get the first stocks estimate of the new crop, updates to U.S. crop size and winter wheat seedings. That will set the tone for the next few months, and by then we will know at least a little more about how the South American crops are progressing. Until we get to that report, we are going to continue to trade headlines and wait on Chinese purchases.