Posted on November, 18, 2024 at 02:39 pm
Want proof of why hedgers hedge? Look no further than last week’s trade action. Grain markets made it through two large events including the U.S. election and the monthly USDA report. There were knee-jerk reactions in both directions which certainly keeps emotions high for those with unprotected grain. It proves the importance of remaining balanced, even with adjustments to the USDA balance sheet.
The USDA lowered U.S. corn production to 15.143 billion bushels, down 60 million bushels from last month. That was well below trade estimates thanks to a trim of .7 bushels per acre to the national yield, which now sits at 183.1 bushels per acre. The move resulted in U.S. ending stocks shrinking from 1.999 billion bushels last month to 1.938 billion bushels. The trend of lower U.S. corn stocks continues despite the USDA failing to make any changes to U.S. corn demand. While tighter stocks are a supportive feature for corn futures, the trade still remains concerned that U.S. ending stocks are 10% higher than last year.
This is a topic that received a fair amount of market attention following the report, as the demand side of the balance sheet remained unchanged. That was an interesting point as U.S. corn export sales are running well ahead of last year’s pace and current USDA projections. So, why didn’t the USDA increase export demand? In reality, it may be too early. The marketing year for corn is still in its infancy and leaves a large window for a lull in demand later in the year. That means the USDA may be waiting to see if the impressive pace continues before making any export demand adjustments. If it does, I wouldn’t be surprised to see this accounted for in next month’s report.
Globally, the USDA lowered corn ending stocks more than trade estimates thanks to lower U.S. production. The agency also lowered production for Mexico and China. While the adjustments may seem minor, this trend will be worth monitoring as both countries are large importers of corn. In turn, it proves the point of why U.S. corn export demand has been strong from both countries. Will it continue? Lower production should equate to larger import demand. Outside of that, global changes were minimal as South American production remained unchanged. This could be a recurring theme over the next couple of months until they enter the heart of the growing season.
Source: AGWeek