USDA Sets the Goalposts, A January Tradition Continues

USDA Manure JPEGThis past week I was back from vacation with a turnaround time of about 24 hours and then headed off 5 hours down the road to Lindsay Ontario.  I was the guest speaker at a financial management and tax seminar put on by BDO in that fine Eastern Ontario community.  It was a 1st opportunity for me to speak on the grains this year and I got to engage many producers on the vagaries of that mysterious grain market.

Of course timing is everything.  I was glad to go to Lindsay to talk about the grains and but it was pretty obvious to me the market would have a lot much more to say the next day on January 12th.  USDA was set to release its annual January report, which always has fireworks.  Like the thunder before the lightning and the breath before the 1st kiss that was what it was like that day.  I tried to warn the respective people who came out of the impending impact of USDA numbers, which we received this morning.  It was like wait for tomorrow, something big is going to happen.

The January report did not disappoint in terms of impact.  The last 5 years have seen limit moves from the January USDA in corn.  So when the 1st inklings of the report came across my Twitter feed, with corn at 147.2 bushels per acre, I knew it was bearish.  Then I heard that ending stocks and quarterly stocks had increased.  That told me we were in for a limit down day on corn and that is exactly where we ended up.  Hold me to this one.  Next January 2013 USDA report, we’ll see another limit move.

When the market opened, corn was down 39, and then hit 40; soybeans were down 50 but rebounded to finish down 21.  In many ways, it was a reaction to the hype, with non-commercials headed for the exits, following the headlines.  The market was leaning hard on old crop corn and when USDA came up with half a bushel more per acre it didn’t take much to send prices lower.  Soybeans followed corn and had their yield boosted too.  However, there’s been such dry weather in Brazil and Argentina lately, losses were mitigated throughout the day.  Wheat got hammered but at this point, what else is new.  There is blood on the floor everywhere.

We had a $.40 drop in corn but the stocks to use ratio did not change from yesterday, still at 6.7%.  How does that happen?  If there ever was poster for noncommercial demand, this is it.  Our speculator friends are skittish on grains, especially at a time when the fundamentals aren’t quite adding up.  We have the lowest stocks to use ratio since 1996 and we have limit down.  Go figure.

If there had been a $.50 limit on corn, something tells me we would’ve hit it.  This is market volatility defined.  As we move ahead, markets will probably tread water until South American weather tells us different.  In the distance the March 30th prospective plantings report looms in stature to what we have just seen.

If corn stocks are tight then soybean stocks are comfortable at 9.1%.  Wheat on the other hand, has stocks to use ratio of 41.2% with world production almost the highest ever.  So as we move ahead, corn will lead the way, unless South America changes everything.

In Ontario, I saw a few cornfields still out ready to harvest on my travels to Lindsay East of Toronto.  One of my colleagues from Essex County finished harvesting corn this past week, so I presumed that many of these cornfields I saw were out by choice.  However, I was told that wasn’t the case as many of these fields were heavy clay and farmers were still waiting for cold weather to put equipment on them.

Basis levels for corn in Ontario are still weighted under the pressure of the good 2011 harvest.  Ontario average yield is said to be about 160 bushels per acre, incredible after the late start we had last spring.  Eastern Ontario basis levels are more buoyant because Québec had a very poor crop and much Ontario corn is being shipped there.  As we move toward spring I expect corn basis levels to change to import pricing.

Needless to say, there was some disappointment in Canadian farm country this morning based on the USDA results.  Yesterday in Lindsay I was asked to comment on how the USDA measures yield.  I responded by saying they had changed their methodology but I was not very familiar with what that was.  I went on to say that it really didn’t matter, as the USDA sets the goalposts on crop production, ending stocks and usage.  So you have to trade something and these are the numbers that we have.  In other words, that’s it.

Is hope on the way?  Or what about those $8 corn calls from last summer?  Oh, sober 2nd thought.  Retrospect has such 2020 vision.