USDA kicked the can down the road once again. They did not adjust Chinese demand despite the fact that China has already committed to a very large amount. They did not adjust the Brazilian corn crop down very much despite some private analysts forecasting a loss of 750-825 million bushels from the safrinha crop. They left yield and acreage alone on corn and beans which was expected. Acreage will be adjusted on June 30th. That will be a big report.
USDA dropped old crop carryout to 1.107 billion bushels from 1.257 last report which was just below the average expectation. With the pace of ethanol crush and exports, they could have increased old crop demand and tightened up carryout even more. New crop was just below expectations too at 1.357 billion (1.5 billion last month). That is assuming trend yield and the weather so far has not given much confidence in a trend yield. We feel strongly they will have to increase acres at the end of the month, but if the weather does not improve, acres will be a moot point.
Market read USDA as a little bearish for old crop and pretty neutral for new crop. They lowered domestic crush which took carryout a little higher (from 120 mln bu last month to 135 mln bu). This is not bearish for long. It still looks like processors are going to run out of beans before the new crop arrives and are going to have to take some plant down time. Beans are harder to kill in June than corn in the Midwest so they can afford to wait. New crop is still well above $14.50 and should stay very supported on breaks. There is a lot of growing season left and plenty of demand.
In my opinion this report is now priced in and we can move on. Back to trading weather. The yoyo this week has been that the long term forecasts are very dire but there are some rains forecast in the short term. The Euro model has been much more accurate in the last few months and it shows the smallest totals. There are some rains falling in Canada and into the Dakotas but not enough to break the drought. GFS model is showing more rain for Iowa than the Euro. Market will be watching that very closely and the weekend brings many model runs that cannot be priced in as they are released and must all be priced in Sunday night. The long term models can change but many forecasters do not think this dry cycle is going to break. In a normal year, weather now would not be this important. The vast majority of the growing regions went into the growing season with a significant deficit of subsoil moisture so each and every rain is important and must be timely. The lack of moisture would catch the markets attention even if we were not so tight on stocks. The extra demand and lack of old crop supply just adds fuel to the fire.
USDA was bullish on US wheat but bearish on world wheat numbers. There is going to be a lot more wheat fed in the US than USDA is estimating. Russia looks to have a decent crop and has building stocks which may pressure wheat. On the positive side, corn is now premium to wheat so you can get much better basis into the feed channel now. If want to ship your wheat quick and at a premium, this is your year! There is a pig, turkey or even a chicken that will love to have you wheat. If you have made up your mind to ship at least some wheat into the feed channel, get basis on sooner rather than later. Milling basis is poised to shoot much higher this fall since so much wheat is going to get fed. Be getting feed basis locked in, but be patient on milling basis for fall.
Cotton was a very bullish report because 12 million bales is tight and i see acres coming down and exports with room to move higher. That carryout should continue to shrink even with good weather. Cotton should see $0.90 cents.