U.S. farmers have planted a whale of a soybean crop this year, and if that crop reaches fruition, it'll keep the bears fed for some time, analysts and traders say after soaking up Monday's USDA Quarterly Grain Stocks and June Acreage reports.
USDA pegged soybean acres for 2014 11% higher than last year at 84.8 million. That's more than 2 million higher than previous trade estimates, analysts say.
"Big bear surprise in bean acres! Record-size bean crop," says Bob Linneman, market analyst with Kluis Commodities LLC. "Now the question becomes yield -- watch the Monday crop condition reports. Also, corn was neutral, but beans are so bearish that we may see the beans keep the corn down."
Corn stocks are almost 40% higher than they were a year ago, while soybean stocks are slightly lower, according to Monday's USDA-NASS Grain Stocks report.
The report shows corn on hand in the U.S. on June 1 was 3.85 billion bushels, up 39% from a year ago. Corn on hand on farms is even higher than it was a year ago, the report shows.
"Of the total stocks, 1.86 billion bushels are stored on farms, up 48% from a year earlier. Off-farm stocks, at 1.99 billion bushels, are up 32% from a year ago. The March-May 2014 indicated disappearance is 3.15 billion bushels, compared with 2.63 billion bushels during the same period last year," according to Monday's Stocks report.
"Area for harvest, at 84.1 million acres, is up 11% from 2013 and will be a record high by more than 7.4 million acres, if realized. Record-high planted acreage is estimated in Michigan, Minnesota, Nebraska, New York, North Dakota, Ohio, Pennsylvania, South Dakota, and Wisconsin," according to Monday's Acreage report.
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Traders and analysts say these numbers are sharply bearish in early postreport trading. Nearby soybeans plunged 54 cents and nearby corn dove 12 cents lower immediately after the numbers were released. Whether that continues through the day and into Tuesday, remains to be seen, says Cory Bratland, Kluis Commodities LLC analyst.
"A lot of soybeans in the country are suffering from the old saying soybeans don't like wet feet . . . soybeans are really struggling here. We have may this acreage up high here, but we may see yield come down here," he says. "It will be real interesting going forward watching weekly crop progress on soybean yields."
This chart shows the new-crop November soybean contract and how it had traded as of noon on Monday following USDA's bearish stocks and acreage reports. As of 12:00 p.m. Central Time, the contract was 61 cents lower in 1 hour of trading after the USDA data's release.
The report and its immediate reaction did surprise many on the CME Group floor, says Jack Scoville, trader with The PRICE Futures Group. Whether that surprising feedback continues will depend a lot on other factors moving forward.
"Corn and wheat are not so bearish -- more in line -- but probably taking some of the gas from beans," Scoville says. "I think corn and beans can hold in through here; beans maybe have more downside coming. The stocks bigger keeps the nearby spread ugly now. Wow."
That spread will likely stay "ugly" for a while, adds U.S. Commodities broker and grain analyst Don Roose. That's because even if weather that would normally fuel a rally comes along, it's going to be a heavy lift for the bulls to edge out the bears let loose by Monday's data.
"On beans, you've got a double-hit to the downside. Stocks were bigger than what they thought, and the acres are mammoth...close to a 500-million-bushel carryout. You have a lot of cushion now," Roose says. "I think it's going to be hard-fought to look at beans moving higher. This is a significant report. You now have acres to give you a cushion -- a much bigger cushion on old- and new-crop. It's going to make it hard to really have confidence in crop ratings from a support standpoint."
What's the main driver behind the higher corn stocks number? Four simple letters: PEDv – the porcine epidemic diarrhea virus that has been ravaging the U.S. hog industry over the last year or so. Roose says there's been a lot less corn used in the last year, and that coincides closely with the general U.S. hog herd cull that's been undertaken to stop the spread of the virus.
"The hogs gave you a prelude for the corn stocks report. That's the reason it was lower overnight, then a kicker to the downside. What it really said is we probably fed between 50 and 60 million bushels less corn than we did a year ago," he says.
While many traders see Monday's USDA stocks and acreage data to be a huge wall for the bulls to climb in the trade, there remains some now historically anomalous weather in parts of the Corn Belt. As corn and soybean yield potential in some spots continues to drag lower because of excessive moisture, it could start to garner more attention in the trade, ultimately perking up the bulls down the road, says Matt Campbell, risk management consultant with FCStone in an email commentary to customers on Monday.
"Warm and initially wet weather early this week will be followed by cool/sunny and dry weather into the holiday weekend. The coming drier/sunny weather is just what the central U.S. crops desire following a June that will rank as being one of the top wettest since 1895," he says. "Central U.S. soil moisture is broadly adequate to surplus and a week to 12 days of dryness would aid new-crop soybeans and corn."
Adds Teucrium Trading market analyst and broker Sal Gilbertie: "The markets appear to be pricing near perfect growing conditions for the remainder of the growing season, which means weather will now become the main driver of prices going forward into July's critical pollination period."
