Well, we got the numbers this morning. With the exception of the beans, they were not pretty. I tend to overlook this report at this time of year however because the industry is now looking at the new crop as harvest is running at full speed ahead and the new crop is coming into the bins and into the distribution pipeline.
The old crop carryover is interesting but it is backward looking and thus, in my view, not all that important as far as the price discovery process goes. It shows us that which has been, not that which shall be, other than the fact that it reveals the demand/supply picture for the previous crop year. That is why, as long as I have been trading grains, I still do not understand the market's obsession with a backward looking number. It is so out of character for the FUTURES market which is supposedly a forward looking market. Judging or estimating demand from one crop year to the next has never made sense to me as it is not how end users operate.
That being said, the market responded rather wildly to the bean number. Old crop carryover was expected to be somewhere in the vicinity of 130 million bushels. Instead it was 92 million! That is a pretty significant miss on the part of traders. It does tell us that demand for beans has been very strong as end users were experiencing some difficulty in securing enough here domestically while they wait for the massive new crop to arrive.
However, new crop is already flowing into the distribution channels. Also, based on the last USDA report, carryover for the 2014 crop is expected to be 4X larger than last year. That should go a long way to dispelling any notion of panic buying by bean users! One crop year can make a huge difference and that is exactly what we are seeing. Bean demand has been strong but it will need to be in order to absorb this year's massive crop and the expected large crop coming out of S. America once more.
On the corn side of the equation, the miss was also very large but in this case it was a miss that underestimated the amount of old crop carryover. Traders were looking for something in the vicinity of 1.181 billion bushels. Instead we got 1.236 billion left over. Throw a huge corn crop coming to market and we are going to have a lot of corn to move over the next year.
Wheat was also underestimated with the average expected carryover near 1.894 billion bushels. Instead we got 1.914 billion.
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