USDA Supply/Demand Report Day

The much anticipated USDA report hit the wires this AM and as usual, has touched off an enormous flurry of algorithmic activity.

As far as the soybean market goes, pre-report expectations were very accurate this time around. Most analysts expected a slight bump higher in the yield per acre number which would boost the final crop size somewhat but keep it below the 4 billion bushel number.

The total production number, on a yield of 47.5 bushels, is expected to be 3.958 billion bushels. That is slightly higher than last month's number of 3.927 billion.

USDA bumped up the crush 10 million bushels and exports by 20 million bushels, in response no doubt to the torrid export pace that we have seen thus far.

They thus managed to find another enough demand to offset the pop in supply leaving the expected carryover at 450 millions bushels, exactly unchanged from last month's number.

It is however, 5X larger than the ending stocks of the 2013-2014 marketing year which USDA left unchanged at 92 million bushels.

The corn is what took many by surprise as USDA lowered the yield from 174.2 bushels to 173.4. That took the total production down slightly to what is still a record 14.407 billion bushels from the previous month's 14.475 bushels. That is a drop of 68 million bushels.

They did kick corn used for ethanol up 25 million bushels as ethanol producers have been having a field day with this cheap corn.

Ending stocks thus were reduced down to 2.008 billion bushels compared to last month's 2.081 billion bushels. Last year's marketing year carryover was 1.236 billion to give you some perspective. Thus we are a bit shy of having twice the corn left over this marketing year than we had last year.

Corn bulls are getting all giddy over the number but it is difficult for me to get too excited about a record corn crop and a carryover of this size, especially given the very weak export numbers we have been getting of late. Maybe end users will decide to buy now based off of this report but that remains unclear.

The question will be what are farmers going to do now that the market has rallied some 60 cents ahead of this report and are slightly higher now after the report? Unless we get a demand surge from somewhere, we are certainly not going to be running out of corn anytime soon.

Early price action in response to the report is some weakness in the beans, notably in the meal, and some strength in the corn. I am unsure what percentage of this is spread unwinding. There are HUGE numbers of spreads that are being lifted or implemented right now and that activity if causing some fairly widespread volatility.

We will have to see how the dust settles today after some of the big commercial firms have had some time to go through the numbers and digest them. Right now it is all machine driven action.