Next Friday is the January supply and demand report, the Quarterly Stocks report and the Winter Wheat seedings report. The only thing I know for certain is that we will have a lot of volatility. The quarterly stocks estimate, which seems to have been created with a random number generator the past couple of years could cause a limit move in either direction. The supply and demand numbers will also cause wild swings because there is the potential for some significant changes to the balance sheets. The top candidates for major changes are corn harvested acres, corn yield, corn exports, soybean yield and soybean exports. I wouldn’t be surprised to see very few changes in the wheat, but the corn and soybeans are a different story.
The corn numbers have the potential to be bullish since there is a high likelihood that harvested acres will be cut due to the higher than normal abandonment and silage cutting. The yield estimate could go either way and the export estimate will definitely be cut. I hesitate to even guess about the quarterly stocks number since they so are erratic, but there is the potential for a relatively low number if USDA corrects some of their past mistakes in regards to feed usage, but that will be offset by the historically low exports, which is why it is so hard to guess a stocks number.
The soybeans probably have the most bearish potential. Many analysts will be looking for a higher yield estimate. I think there is the possibility of lower harvested acreage, but I would be looking for production to be higher overall. I think there should be an increase in the export estimate, but USDA may look at the S. American crop and come to the conclusion that our sales later in the crop year will be small and leave the estimate alone for the time being.
On the charts, everything looks pretty ugly. Friday the March corn filled and closed below the open chart gap at $6.83 ½. That makes $6.78 and $6.39 the next downside objectives. The market is oversold and due for a correction, but that has been the case for about a month. The market needs some bullish news in order to spark a turn around and if it doesn’t come in the reports on Friday, the bulls will be stuck waiting for good export sales for a long time.
The March KW doesn’t look much better. After falling out of the sideways trading range after the December supply and demand report, the market has been working steadily lower. The next downside objective is the $7.89 area and that could be reached very easily ahead of the reports. The wheat has had some positive news the past month in the form of decent export sales and declining crop condition ratings, but supplies are viewed as plentiful and unless demand does something to change ideas that we have plenty of wheat, the market will have a hard time posting consistent gains. Someday the weather and the crop conditions might come into play, but don’t count on that until March or later.
There is a small glimmer of hope on the soybean chart after the November low was tested and held. It looks like it is a good place to start a rally, especially since the market is due for a correction anyway. Demand is still good even though we are still seeing cancellations by the Chinese. After the last round of cancellations they quickly bought the beans back and I suspect that will be the case again since the Chinese crush margins are very, very good. The bio-diesel blenders credit is also a plus for soybean demand since it will likely increase the usage of bean oil. The biggest negative factor is that S. American weather is viewed as non-threatening, so we will have to see strong demand to offset that.
The February live cattle finished the week slightly lower despite the likelihood of higher cash cattle trade. The March feeders, however, gained about $1.50 and look like they are ready to start another leg higher. Projections for declining beef production for the next couple of years are very supportive to the market and cannot be ignored. Look for an exciting winter and spring in the cattle market.