Grain Markets Surprised by Bearish Report

 | Jan 12, 2012 | 1:30 PM EST
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U.S. grain futures markets got a bearish surprise Thursday morning when the U.S. Department of Agriculture (USDA) issued its latest forecasts on grain stocks and the overall supply and demand situation for the major grains. The government predicted significantly higher-than-expected supplies of corn and soybeans in U.S. stockpiles and estimated higher-than-expected plantings of U.S. winter wheat.

Grain futures prices were called to open sharply lower in early market calls Thursday morning. Before the U.S. grain futures markets opened on Thursday, selling pressure hit the agriculture-related stocks in the wake of the disappointing report.

The grain market bulls had been enjoying modest rebounds from the multi-month price lows that were scored for corn, soybeans and wheat futures during December. A dry and hot spell in major corn- and soybean-growing regions in South America helped to fuel the recent price rallies. Also, some fresh, speculative "commodity fund" monies have been flowing into the grain futures markets as portfolio managers have looked to buy the grain futures markets, which had been beaten down harshly during the last half of 2011.

However, Thursday's USDA data threw cold water on the grain market bulls, and the repercussions could last a few weeks, to a few months -- at least until the U.S. row crops planting season gets under way in early springtime.

Specifically, the Agriculture Department put the national average corn yield at 147 bushels per acre. The increase in the national average yield pushed 2011 corn production to nearly 80 million bushels above the average pre-report trade estimate. The USDA also added 45,000 acres to the harvested U.S. acreage total compared to the November crop report, and it placed the national average soybean yield at 41.5 bushels per acre. That's up 0.2 bushels from the November crop production report.

The increase means the U.S. bean crop is nearly 15 million bushels above the average pre-report trade estimate. U.S. corn and soybean stocks also came in above the average pre-report trade guess. Meanwhile, U.S. winter wheat seedings came in above the average pre-report trade estimate. Soft red winter wheat seedings were expected to drop one million acres from a year ago, but instead they are down only about 300,000. U.S. hard red winter wheat seedings also surpassed the average pre-report trade estimate by a half-million acres.

From a technical perspective, while the grain futures markets had recovered from their December price lows, they were not at all in a strong bullish posture. It now appears the technical posture of the grain markets will quickly turn bearish again, for at least the next few weeks.

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