Bearish report hits the grain market

USDA Ending Stocks Estimates from today's report

USDA Dec. 08/09 End Stocks Average Trade Guess
Corn 1.790 1.489

Soybeans 0.225 .186
Wheat 0.655 .655

Compliments of the Linn Group

"March Corn fell 30 cents to $3.80 per bushel. The combination of a bearish report from the USDA and crude taking a hit to the downside today helped corn lock limit down. Traders said that funds came in and sold 4000 contracts with options traders giving the indication that futures may open over seven cents lower. The USDA reported that corn production for the U.S. in 2008 came in at 12.101 billion bushels above the estimated 11.975 billion bushels. The USDA also reported that inspections for export were at 20.013 million bushels well below the estimated 24 to 29 million bushels. Argentina is still plagued by hot, dry weather adding stress to the corn and soy crops with Brazil fairing a little better. CFTC reports that funds cut their net shorts last week.

January Soybeans fell 83-1/2 cents to $9.54, with March locked limit down 70 cents to $9.66. Breaking crude adds to the selling pressure after the USDA reports larger than expected soy stocks. Traders said that funds came in and sold 6000 contracts with option traders giving the indication that futures may open four cents lower. The USDA reported that soy stocks were at 2.276 billion bushels for the period ending Dec.1. Well above the estimated 2.182 billion bushels. The USDA also report that inspections for export were at 23.228 million well below the estimated 25-30 million. The CFTC reported that speculators increased their longs despite todays break. Cash market remains steady to lower.

March Wheat fell 60 cents to $5.69-1/2 with May also locking limit down. Wheat also breaks on the USDA report of a larger crop and poorer exports. Traders said that funds came in and sold 5000 contracts with option traders indicating that the futures would open at their day session price of $5.69-1/2. The USDA also reported that inspections for export were at 19.613 million bushels nicely above the estimated 9 to 15 million. The CFTC report that speculators trimmed their net shorts last week. With the Midwest getting blanketed in snow, no threat of winterkill over the U.S. plains for this past weekend."

The question remains is the more liquidation left or is the start to something bigger?

7 % Stocks to Use would historically imply a 6.75-8.00 cash price. I am not 6.75 bearish beans but one cannot exclude anything this year!

Our corn stocks were 239 million over expectations and suggests a 20% decline in y/o/y in corn feeding. This is unprecendented but as I stated many many times to clients that very few were able to plug in 6.50-7.50 corn and produce a ROI. So now here we are wondering where all of that corn came from, makes me wonder? This in my opinion reduces concern over a potentially tight 09/10 US corn balance table and that is important.

Soybean stocks today are 95 mil bu over expectations—the largest ever in most databases. We still have to contend with Argentine weather and a hungry China which should stabilize our fall in price, but it appears that all eyes are on an increasing supply rather than demand. There is nothing bullish about total global grain stocks (mostly corn) advancing nearly 16mmt vs. last year. Today’s report spoiled the party for corn bulls—you’ll recall that the Jan ’08 crop report posted corn stocks nearly 300 mil bu less than trade expectations.... This is almost the polar opposite.

To close, this break was expected EX bullish surprise on the report. We came too far too fast for the rally to be durable. End users should use this retracement to be scale down buyers just the same as I told grain farmers to be scale up seller's on the rally. TO succeed in this environment, you have to be willing to do the hard thing and that is selling on the big green days when you are sure that it is going significantly higher and buy on the red days when the last to buy are the first in line to get out! For grain farmers, I urge you to consider selling strength when it happens or when Mr. Market gives us a chance. There may be limited opportunities to lock in profits, don't let indecisiveness get in the way of making 2009 a success.

Jon Hart