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Is the suspense regarding the new crop corn supply over, or just beginning? This week, the USDA stunned traders with their ambitious 2016 production estimate of 14.430 BB with ending stocks at 2.153 BB. This was based upon planted acres of 93.6 million and a yield of 168 bpa. However, their survey was taken in March and, since then, the corn-soybean price relationship has risen to 2.75:1 in favor of planting soybeans. As a result, the acreage report in June could reflect as many as 1-2 million acres switched to soybeans. Meanwhile, planting is 64 percent complete compared to 69 percent a year ago and 50 percent for the average. Export inspections were 44.9 MB, but below the average of 45.4 MB needed each week to reach USDA’s revised target of 1.725 BB. Last week, the funds trimmed their long position 30 MB to 290 MB.
Are soybeans on a collision course, or are current values fundamentally justified? This week, the USDA shocked traders with their 2016-17 ending stocks estimate of 305 MB, which was 122 MB below the average trade guess. They project record demand, a 4.6 percent increase from a year ago, as well as a 4.0 million ton increase in China’s imports. While the USDA has painted a robust demand picture, we need to see proof in the pudding. Currently, global stocks-to-usage are 20.8 percent and in the mid third of their 20-year range. This does not reflect a supply shortage. In addition, China’s growth rate, their GDP, has been in a steady decline since 2010, which leaves their projected increase in imports questionable. The dollar has been waning since October, but appears to be forging a bottom. If so, the potential exists for it rising to 104.00 for a 13 percent gain. This would certainly stymy increased demand potential. In the meantime, the fund long position has risen to 790 MB, the largest since March 2014. Shortly after that occurred and the band quit playing, prices plummeted 41 percent. Lastly, 1-2 million acres may find their way from corn into soybeans. Long story short, bullish assumptions are being made that have yet to be proven. In other news, export inspections were mediocre at 4.0 MB. Planting is 23 percent complete compared to 26 percent a year ago and 16 percent for the average.
There is no good news in wheat. The USDA ratcheted their 2016-17 ending stocks estimate to 1.029 BB putting stocks-to-usage at a record 49.5 percent. Meanwhile, they jacked up world stocks 14.4 million tons to a record 257.3 million. This keeps the bears firmly in control. One bright nugget last week was that export inspections were better than expected at 18.2 MB. In other developments, the crop rating rose one point to 62 percent in good-to excellent condition and compares to 44 percent a year ago. The funds are inactive, but hold a short position of 535 MB.
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