Grain Markets Await USDA Report

Anticipation is building over this Friday’s US Department of Agriculture (USDA) spring sowings estimates, which are set to be released alongside the USDA’s quarterly grain stocks report. The estimates are expected to showcase the American inventory shortages that have driven grain and fertilizer markets over the past few months, as well as important planting numbers for key crops like corn and soybeans.

This announcement should have a big impact on grain markets, as many investors are in holding patterns until the report’s release provides them with more refined numbers.

The week leading up to the report saw soft commodities prices fall slightly over concerns about rising oil prices choking off growth, and a relative malaise over China’s economic prospects.

Despite these concerns, wheat and soybean prices remained strong on continued weather concerns, large-scale tenders made by key purchasers, and continued belief in upcoming US yield numbers.

Corn

China’s recent purchase of 360,000 tonnes of US corn out of the Pacific Northwest for mid-summer delivery provided a strong incentive to maintain current premiums received on US deliveries. High demand for ethanol and feed supply, coupled with above-average temperatures across the US Corn Belt, have led many investors to bank on record US corn sowings and yields.

But while the warmer weather will provide an opportunity for US farmers to begin early sowings of fields, University of Illinois agricultural economist Darrel Good warns that “[w]hile there is a clear yield penalty for late [corn] planting, there [is] not a similar yield premium for early planting.” However, many still suspect that high yields are possible over the year, and are hopeful that they will satisfy the strong current demand from international markets.

China in particular is one region many investors are banking on absorbing any increased corn output in 2012. China, a former exporter of corn, is now a net importer with around one million tonnes coming from the US for the past two years, a figure that the USDA projects will increase to nearly 2 million tonnes this year.

But while corn export opportunities appear promising in China, where corn prices are currently at a record high, up almost ten percent this year alone, there is doubt that this dynamic is a macroeconomic reality; rather it may be the result of timing. A recent Reuters article cast doubt on the longevity of current corn prices, suggesting that inefficiencies and log jams in the pig feed markets could be responsible for much of the import demand currently being experienced.

Further, Bloomberg recently reported that investors’ and traders’ predictions about the corn markets, specifically regarding US corn reserve figures and actual USDA registered reserves, have been quite far apart in the past. Over the last seven quarterly reports released, traders have missed estimates by 225 million bushels, roughly the yearly corn consumption of Russia.

As a result, corn prices are likely in for a bumpy ride following Friday’s USDA release.

Wheat

Weather continues to inform wheat markets, with droughts in South America and Europe putting significant strain on planting expectations for the upcoming season.

France, Europe’s biggest wheat producer, has seen significant water shortages thus far, with water for the year to date standing at 55 percent of the expected levels.

Egypt, the world’s largest buyer of wheat, provided support for US FOB Gulf Grain prices as its main state grain buyer, the General Authority for Supply Commodities (GASC), set a tender on Tuesday to buy wheat for May 11 to 20 shipment. Multiple tenders were made over the past week, with 60,000 tons of tenders made for US wheat, hovering around the US $262/ton area, and more than 60,000 tons secured in the Argentine market.

Soybeans

Chicago soybeans rose again after hitting a six-month high earlier this week on worries over supply from drought-hit South America and higher Chinese demand for US beans. Soybeans for May delivery climbed 0.2 percent to US $13.705/bushel on the Chicago Board of Trade as of early Thursday afternoon.

US soybean export premiums were mostly steady on expectations of increased soybean sowing coming out of the USDA report this Friday. Soybean stocks are expected to be in a deficit, according to Goldman Sachs (NYSE:GS), as farmers see a limited gain in acreage amid rising exports following a drought that hurt South American production.

US farmers will sow 75 million acres of soybeans, close to the same number from last year.

Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.