Morning Futures Roundup

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Update for USDA September Crop Report


    Fundamentals

Once again, grain traders will likely be setting their alarm clocks to go off early on Monday, as the USDA releases its Crop Production & Supply/Demand report for September.

Soybeans: Many traders are looking for a moderate decline in average yields to 41 bushels per acre, which is down 0.4 bushels per acre from the August report. The drop in yields is expected to lower this season's production to around 3.025 billion bushels, down from 3.056 billion bushels last month. 2011-12 ending stocks could slip to 150 million bushels, which though tight, should be sufficient to get us through the year, as both export demand and domestic feed demand is expected to be lowered due to high domestic prices for Soybeans and competition from South American Soybeans in the export market. Some traders believe we would have to see average yields fall below 40 bushels per acre to get commercial buyers nervous and spark a potentially significant rally in new-crop beans.

Corn: It does appear that the hot and dry conditions in July did have an effect on the Corn crop, as traders are looking for sub 150 bushels per acre average yields, with the average estimates calling for 148.5 bushels per acre, which is well below the 153 bushels estimated in the August report. The cut in yields should lower production estimates to somewhere near 12.5 billion bushels, or over 400 million bushels below the August totals. Ending stocks for 2011-12 should fall to around 640 million bushels, or about 300 million bushels below last year. Here, Corn demand for livestock feed is expected to be challenged by potentially cheaper feed wheat in some areas. However, US ethanol production is expected to increase and may take the lead from feed users for US Corn demand this coming year.

Wheat: Increased Wheat usage for feed and potentially lower Spring Wheat production estimates are expected to lower the USDA's Wheat supply estimate ,with analysts looking for total Wheat supplies to fall to 667 million bushels for the 2011-12 season. This translates to only a 4 million bushel decline from the August report, as competition from the Baltic region suppliers such as Russia and Ukraine should hamper US Wheat export totals.

Cotton: Many traders are looking for US Cotton production to come in around 16 million bales, after a severe drought decimated the Texas Cotton crop. Though the USDA expects to see increased Cotton production out of India, recent flooding in Pakistan could cut nearly 2 million bales from the country's production totals. The key here will be Chinese demand, and the recent sell-off in Cotton prices has spurred some fresh commercial buying.


    Technical Notes

Looking at the daily chart for December Corn, we notice that similar to the Soybean chart we looked at on Friday, the daily Corn chart is showing what appears to be a "bull flag" formation. This is considered a consolidation pattern in the midst of a bull market move. In order to "confirm the formation" we would need to see prices break out to the upside on ideally higher than average volume. Prices have fallen below the 20-day moving average, giving some support for the Corn bears. The 14-day RSI has moved to neutral territory, with a current reading of 51.93. Support for December Corn is found at 706.25, with resistance seen at the contract highs of 779.00.


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