Morning Futures Roundup

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Will the USDA Report Help or Hurt Grain Prices?


   Fundamentals


2011 has been a volatile year for grain futures, with producers seeing record high Corn prices in August, followed by prices falling over $2.00 per bushels in one month's time. Soybeans flirted with the $15.00 per bushel level for only the second time in history, before prices plunged sharply in September. Given this price volatility, many traders remain nervous going into the USDA October Crop Production & Supply/Demand report due out at 7:30 am Chicago time this morning. For Corn, many traders will likely be focusing on the revision to average yield estimates, with many in the trade looking for a 2 to 3 bushel increase in average yield from the 148.1 seen in the September Crop Report. Also of note will be the crop acreage report, with many traders looking for a lower revision to harvested acreage of nearly 500,000 acres. So far, many market participants are looking for a Corn harvest just below 12.5 billion bushels, which is nearly unchanged from September's estimate. The October estimate for next year's carryout totals may be the most widely anticipated of the data, as there is much debate on how much demand will be restored now that prices are well off the historic highs. Current market estimates are for an increase in carryout totals to about 815 million bushels, which is up from 672 million bushels in the September report.

For Soybeans, many traders expect the USDA to raise the average yield by 0.2 bushel per acre to 42.0 bushels per acre. Harvested acreage should show a decrease of nearly 300,000 acres, putting the total production figures closer to 3.1 billion bushels, which is up slightly from the 3.085 billion bushels from the September report. Like Corn, the 2012 carryout totals estimate will be highly anticipated, as traders wait to see the USDA's take on US Soybean export estimates, especially with large supplies of beans available from South America and the uncertainly regarding how strong Soybean demand will be from China as we move into 2012. Many traders are looking for Soybean ending stocks to increase to 185 million bushels, which is up 20 million bushels from the September report.

Looking forward, the recent decline in prices may spur more export business to the US, especially if we start to see the US Dollar begin to decline off its recent highs. Export totals this past week were supportive for Corn, and especially Soybeans, as the latter saw export totals double from the previous week. Speculative accounts have been shedding their long positions aggressively during the past month, and should we see any bullish "surprises" in this morning's report, or should we see some positive news out of the European debt situation, we may see renewed bullish interest in the grain complex going into 2012.



   Technical Notes

Looking at the daily chart for January Soybeans, we notice the market appears to be putting in a near-tem bottom just above the 1160.00 area. Tuesday's sharp rally prior to the USDA report likely demonstrated that a large number of shorts were covering their positions. The 14-day RSI had been hovering in oversold territory during the past few sessions, until yesterday's rally took the momentum indicator to a more neural reading of 44.05. Prices now appear poised to test the 20-day moving average, but remain over one dollar below the 200-day moving average. Support for January Soybeans is seen at the recent low of 1163.50, with resistance found at the low of the previous consolidation near the 1292.50 level.

Click image to enlarge

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