USDA reports shock producers, end users, traders

Monday’s Crop Production and Supply and Demand reports from USDA did more than surprise, they shocked producers, end users and traders alike. While analyst’s average pre-report estimate of the 2008 corn crop was for a reduction from the November report to less than 12 billion bushels, USDA’s final report on the fall harvest indicated an increase of more than 80 million bushels, to more than 12.1 billion. But even more shocking was the predicted ending stocks for next fall of nearly 1.8 billion bushels, an increase from the December report of nearly 325 million bushels.

That sort of news took traders attention off the price of crude oil and the direction of the stock market and focused it squarely on the fundamental supply and demand situation. USDA projected lower usage of corn for feed and ethanol use, as well as lower exports for the marketing year. Combine a drop in all uses of corn, with a bigger than expected crop and prices are almost bound to drop, and drop they did. Corn futures closed down the 30 cent daily limit on Monday and had double-digit losses again on Tuesday. For the week ended Tuesday, March Corn futures were down a whopping 65 cents, with deferred contracts, including new-crop December down similar amounts.

Soybean numbers had a similar bearish cast, with a larger harvest combined with a smaller projected crush. Export projections were increased by 50 million bushels, but projected ending stocks were still increased by 20 million bushels compared to the December report, while analysts were looking for a decrease in carryover. However beans recovered quicker than corn, closing higher on Tuesday after Monday’s limit-down move. For the week ended Tuesday, January and March Soybean futures lost nearly 45 cents, with May off nearly 47.

Softer demand also hit the wheat market. USDA reduced its projection of feed usage of wheat as the price of corn and other feedgrains has dropped. Although export projections were left unchanged from the December report and seedings of winter wheat were a couple of million acres less than expected, the projected ending stocks increased by 32 million bushels compared to the December report. In addition, spillover weakness from the corn and soybean markets tipped the balance and pushed wheat prices off a ledge. In Chicago, the March and May futures contracts both lost about 73 cents for the week. In Kansas City, March futures were 73 lower with the May contract down nearly as much. New-Crop July futures were down nearly 74 cents for the week.

Cattle prices were mostly lower this week as well, with heavy supplies of fed cattle and poor packer margins impacting pricing. February Live Cattle futures were down $4.47 for the week ended Tuesday, with the April contract down $3.75 and June down $2.20. Higher boxed beef cutout values helped offset some of the losses in futures, with the Choice up $4.46 and Select up $5.68. Some modest reductions in slaughter rates apparently were enough to boost retail demand while pressuring cash prices. Fed cattle traded last week at mostly $84-85, off two bucks compared to the previous week.

Feeder Cattle values were mixed this week. Most feeder auction markets were called steady to down three bucks compared to the runaway market of the previous week, but demand was still good for most classes of cattle. January Feeder Cattle futures were up 22 cents for the week, while deferred contracts were weaker, even in the face of sharply lower feed costs.

Hog prices were also mixed this week, with cash prices mostly higher while Lean Hog futures were sharply lower. The February contract finished the week ended Tuesday down $2.50, with the April down $3.57 and May off $2.60. In Sioux Falls, the cash butcher market was stronger, trading Tuesday at $40, up $2.50 compared to the previous week and the three-area lean carcass value also rose by $4.09 for the week.

The next Cattle on Feed report isn’t due until Jan.  23, but there may continue to be fallout from the recent grain reports, as well as poor employment and economic prospects for the country as a whole.