Market Monitor

By Marlin Clark

Some days you can't win, writing a marketing column. Readers think you know something, and you hope to preserve that illusion so they will continue to read.

Today that can't happen. Today I have to write this just as USDA has released the report that is hanging over the market as maybe the most important of the year. And, I have to react to that release before the market opens. On the surface that looks easy. I have the numbers in front of me. In fact, the big question now is the twist the traders will put on the numbers. That is, is there any real surprise?

This Tuesday morning as I write this, USDA has released at 8:30 our time the Annual Crop Production and Planted Harvest Summary. Also released this morning, but not quite so critical, is the USDA January Supply and Demand Report.

At first glance, there is one surprise right away. USDA now says we raised a record crop of corn, in addition to the record crop of soybeans we already were pretty sure about. The cynic would say that is why corn went down nine cents on the overnight session—the traders had inside information. More accurately, the traders lost nerve before the report and sold off.

USDA now says the crop is 13.151 billion bushels. They do admit that they will be revising the estimate in March. As much as five percent of the corn crop was never harvested, and it remains to be seen what the losses from winter weather will be.

This is the year of the topsy-turvey crop. It went in late in most places, then seemed to stagger with a lack of heat. Yet, when the combines hit the fields farmers were very pleased with yields. Then, the harvest was delayed by wet weather. That led to a contra-seasonal harvest rally as the market worried about supplies.

Now, it looks like they did not have to worry. After all the action, we came out with a record crop. There is one lesson to be learned from that—cool weather does not affect the overall crop like hot weather. We think we want hot weather, but that means it is too hot in some areas and those farmers are losing yield. It may also mean that our modern varieties have more vigor in cool years than we realize. The coolest summer on record in most of the Midwest produced the largest crop.

USDA had put the crop at 12.921 billion bushels in the December report. Most traders thought the crop size would be cut, and the average guess was 12.82 billion. So, the market starts in an hour with 330 million extra bushels. That cannot be good for prices. It will encourage those farmers who sold ahead of the report as a matter of discipline.

On this report, ending stocks for August 31, 2010 are estimated at 1.764 billion bushels, up from what was already a high 1.613. In pure numbers that is a high number, and reminiscent of years of low prices. As a percentage of the crop, however, which is more important these days, it is onerous, but not overwhelming.

The soybean crop came in at 3.361 billion bushels, up from the already-record 3.338 of last month. That will lead to 245 million bushels left over at the end of the year according to USDA, up from 237 in the December report.

The question of the last few days in my office has been, what is moving wheat prices? July wheat futures have gained nearly 50 cents in three weeks. USDA says the wheat plantings are down 14 percent from last year, and this is significantly more than traders had thought. 37 million acres are planted, against last year's 43.3. This leads to 200 million bushels less wheat than the smallest pre-report trade guess.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.