USDA's March Supply & Demand report produced the type of bullish report/bearish reaction that folks like to tout as a turning point. Except the report wasn't really that bullish and the reaction wasn't that bearish. Indeed, trying to take anything away from today's gyrations risks losing the forest through the trees.
Yes, the government did cut its forecast of ending stocks by 25 million bushels. The average guess, including my own, saw the report building carryout a little. But 25 million bushels one way or the other is a blip on a crop of almost 14 billion bushels. And that's the real takeaway from this report: Stocks are still large at 1.456 billion. Round it up and it's a billion and a half. So today's report basically changed nothing.
Prices were already headed lower before the numbers came out, with follow through selling noted after Friday's bearish reversal lower. May futures briefly traded $5 before turning, failing to hold a move above the downtrending channel that's been in effect since the 2012 drought. Friday's high also coincided with the 50% retracement of the break from last summer's highs, taking the market below its 200-day moving average today as well.
So, for all the hoopla, the winter rally, though very nice, remains a correction in an overall bear market. In other words, a selling opportunity, until proven otherwise. New crop futures ran into similar levels of chart resistance to set up profit taking.
This doesn't mean the market can't or won't move higher. Though short covering drove the initial half of the rally, big speculators started to build a bullish bet. This appears part of a larger move back into agricultural commodities helped out by concerns exports out of the Black Sea may be disrupted by the Ukraine crisis. South American supplies may also be smaller, though USDA didn't weigh in on that count in Monday's update.
The real turning point for the market likely will come at the end of the month, when USDA updates grain stocks and planting intentions. Both could cause rallies, or the reverse. Feed usage is uncertain, with better than expected feedlot placements, high meat prices and cold weather offset by the impact of PEDv on the hog herd. The rally in corn likely bought a few acres back, though probably hasn't triggered any major changes. We'll report findings of our latest survey the week before, as usual.
In the meantime, growers face one of three important decisions: What to do with crop insurance? I continue to recommend buying 85% Revenue Protection on trend adjusted yields. Coupled with the other two decisions, participating in the Agriculture Risk Coverage program in the new farm bill and pricing 35% of the crop by the first week of April, this should pretty much guarantee a profit for the average grower. Here's what the matrix of yields and harvest December futures looks like for the average grower this week with sales at the current price, $4.78. The lowest profit/acre is $23.
For more on this, download my weekly Corn Report using the link below.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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