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NEAR-TERM MARKET FUNDAMENTALS: Outside market forces are looking slightly negative today. A weak demand tone for the USDA clashed with short-term positive demand news to helped the market see a strong recovery off of the early lows yesterday. March soybeans were down 53 cents early in the session yesterday but managed to rally 37 1/4 cents off of the early lows to late session highs. The USDA data was mostly bearish across the board but especially for the corn market and a limit-down move in corn helped to drive soybeans sharply lower. US soybean production came in at 3.056 billion bushels, up 10 million from previous estimate. Ending stocks, however, were pegged at 275 million bushels as compared with trade expectations looking for 233 million. Exports were revised lower by 25 million and crush down by 10 million. Without a serious drop in South America production, the USDA was in a position to drop usage and the increase in production and lower usage fell directly to the bottom line. World ending stocks for the 2011/12 season came in at 63.43 million tonnes as compared with 64.54 million last month. December 1st soybean stocks came in at 2.366 billion bushels, up 42 million from trade expectations. Weekly export sales for soybeans came in at 434,200 tonnes. Sales of 296,000 metric tonnes are needed each week to reach the USDA forecast. Net meal sales came in at 47,600 tonnes which was below trade expectations and compares with sales of 99,000 tonnes needed each week to reach the USDA forecast. Net oil sales came in at just 1,100 metric tonnes which was also lower than expected. As of January 5th, cumulative soybean oil sales stand at 31.7% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 42.0%. Sales of 10,000 metric tonnes are needed each week to reach the USDA forecast. On top of the weekly sales, private exporters reported to the USDA export sales of 414,000 tonnes of US soybeans to unknown destination. The USDA news was negative but traders believe that the market would not be down as much as it was except for the outlook for improving weather in South America in another 8-9 days after heavy rains in the past few days. Traders will be closely monitoring weather forecasts in South America for direction as a return to a hotter and drier condition could cause further production losses while a shift to a wetter pattern would hold down losses. South Korea bought 55,000 tonnes of South America meal. India vegetable oil imports for December totaled 669,000 tonnes, down 22%. China officials want to raise self sufficiency in edible oils with an output target for domestic production at 24.4 million tonnes by 2015 from 20.1 million tonnes this season.

TODAY’S GUIDANCE: The South America crop conditions improved with the soaking rains this week and there is follow-up rains in the forecast for late in the 6-10 day period. This rain window will be important and could mean the difference between continued weak demand for US soybeans or a jump in demand as buyers shift away from South America if production concerns pick-up.

TODAY’S MARKET IDEAS: The technical action is weak. March soybean resistance is at 1191 1/4 with 1174 3/4 and 1158 as support. Look for 1158 to 1191 range for now.

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NEAR-TERM MARKET FUNDAMENTALS: Ideas that the break was overdone yesterday plus the sharp break in the US dollar to the lowest level since February 7th plus a surging stock market are all seen as positive forces to start the sessions today. Rumors that a large brokerage firm may need to exit long positions in grains, livestock and energy markets if the firm needs to be sold helped to keep pressure on the market late in the session yesterday with November soybeans closing near the lows despite a jump in equity and metal markets. Long traders appeared to be stepping aside due to more volatile trade in financial markets into the EU meetings on the debt crises and this sparked fund trader selling in a wide range of industrial and agricultural commodity markets. Traders indicated good weather for the planting season in South America and concerns for slower than expected US soybean exports ahead as negative factors. Many traders are pushing export forecasts down by 50-75 million bushels due to recent sluggish demand and indications that South America is still an active exporter this late in their season. There were rumors yesterday that China bought a few cargoes from Brazil for December through February shipment which added to the negative export forecast ideas. Brazil is typically out of soybeans at this time of the year with most of the business moving to the US. In addition, commercial traders indicate that Europe has bought no new crop soybeans yet. Weak crush margins have added to the negative tone. Sunflower meal from the Black Sea region is selling at a stiff discount to soymeal. Wet weather for the Eastern Corn Belt was seen as slowing the tail end of the harvest. December oil closed at the lowest level since October 10th. For the weekly export sales report this morning, traders see soybean sales near 800,000 tonnes and meal near 150,000 tonnes.

TODAY’S GUIDANCE: Yield reports in recent weeks have shown as many “better than expected” surprises as compared with disappointment. We have to believe that there is a possibility that the November estimate is raised slightly. If yield is up, South America supply still high, demand sluggish and next years acreage and yield move higher, one could see a significant jump in ending stocks for this year and next. Slow producer selling and supportive outside markets are short-term positive forces but the market looks vulnerable to more weakness ahead.

TODAY’S MARKET IDEAS: The close under 1226 3/4 for January soybeans soured the technical picture and the bulls need to see a close over 1254 1/2 to expect a more significant recovery bounce off of the lows. Resistance comes in at 1245 1/2 and 1254 1/2, with 1219 1/2 and 1209 1/2 as support. A resumption of the downtrend would leave 1117 1/2 as an objective. Outside market forces look powerful today and sellers may want to hold off for now.

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NEAR-TERM MARKET FUNDAMENTALS: From April to early October, November soybeans moved from a 5 cent carry to a 12 cent carry and it took only a few days to see the bull spread move back to 5 under. The bull spreads were a feature of the session yesterday as traders see strong cash basis levels and a lack of producer selling during harvest as a signal that the flat price or the spreads may need to move to a higher level to attract selling from producers. With news of the re-stocking activities in China, many traders have adjusted their China total import estimates to near 58 million tonnes from 56.5 million posted in last week’s supply/demand update. In addition to a smaller crop in China, the National Grains and Oils Information Centre in China believes that crushing capacity in China will jump to 125 million tonnes for 2012, up 12.5 million tonnes. As a result, demand could be on the rise. Weaker crush margins in the US and fears of low protein content have supported bull spreads in meal as well. Crush margins have also weakened in China and Europe so some traders see sluggish demand for soybeans in the short-term. November soybeans closed slightly lower on the session yesterday but up sharply from the early lows. The market was down sharply early due to perceived weak data regarding the China economy and poor economic news from Europe. With gold, silver and energy markets down sharply, traders expected aggressive selling from fund traders but a recovery in the US stock market helped support a strong recover from the early lows. The soybean harvest is 69% complete compared to 51% last week and 81% last year and traders mentioned harvest pressures as another negative force. However, a lack of producer selling during the active harvest season has helped to provide some support as cash basis levels are improving. Weekly export inspections came in at 45 million bushels which was well above trade expectations and compares with 28.1 million necessary each week to reach the USDA projection for the year. The solid recovery in the stock market and in energy markets plus a move higher on the day for corn were seen as the primary reasons for the strong close.

TODAY’S GUIDANCE: The lack of producer selling suggest higher trade just ahead in order to get more soybeans in commercial hands. This mostly provides underlying support as basis and spreads could also invoke new selling from producers.

TODAY’S MARKET IDEAS: Look for a rally short-term but we remain concerned with outside forces so consider smaller objectives and tighter risks on traders in the short-term.

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SOYBEANS

The USDA reports were considered bullish for soybeans with the market called cents 5-10 cents higher on the opening. The USDA pegged soybean production at 3.06 billion bushels from 3.085 billion last month and trade expectations near 3.095 billion. Average yield came in at just 41.5 bushels per acre from 41.8 last month and trade expectations near 42. Ending stocks for the 2011/12 season came in at just 160 million bushels as compared with trade expectations at near 185 million and 165 million as last months estimate. World ending stocks for the 2011/12 season came in at 63.01 million tonnes as compared with 62.55 million last month and the increase came from an adjustment higher in the 2010/11 ending stocks to a record high 69.26 million tonnes.

PRICE OUTLOOK: Declining US and world ending stocks and a smaller than expected US crop plus active buying from China yesterday and rumors that China will be re-stocking reserves should keep the short-term trend up. Look for more up with 1282 1/4 and 1318 3/4 as next upside targets for January soybeans.

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CORN

The USDA report this morning was considered slightly negative against trade expectations with the market called 3-5 cents higher on the opening due to positive soybean news. Production came in at 12.433 billion bushels as compared with 12.497 billion bushels last month and this was about 60 million bushels below trade expectations. However, exports were revised lower so the USDA ending stocks forecast is now at 866 million bushels which is about 60 million above trade expectations and compares with 672 million last month. Harvested acres were revised down by 500,000 which was right in line with expectations and yield was unchanged at 148.1. World ending stocks were adjusted higher to 123.19 million tonnes from 117.39 million last month and 114.53 two months ago. Last year was 129.76.

PRICE OUTLOOK: Given the limit-up surge yesterday and a positive tilt to the soybean data, the market may see some follow-through higher on China buying rumors but December corn resistance should emerge near 675. A lower close today could suggest a set-back to 624 if outside forces turn sour.

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WHEAT

The USDA Supply/Demand report this morning was considered bearish for wheat with the market called slightly lower. US wheat ending stocks were pegged at 837 million bushels as compared with 761 million bushels last month and 671 million two months ago. Traders were looking for ending stocks near 735 million. The USDA lowered wheat feeding to 160 million from 240 million bushels last month and also lowered exports by 50 million bushels. For the world report, 2011/12 ending stocks were pegged at 202.4 million tonnes from 194.6 million last month. Demand numbers were far worse than expected with wheat feeding down in the US and down near 5 million tonnes for the world. World production was revised up by 3 million tonnes.

PRICE OUTLOOK: The jump in US and world ending stocks was not anticipated and the market looks to work lower over the near-term with support for December wheat emerging at 622 3/4 and 608.

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SOYBEANS

The soybean market has seen a collapse of more than $3.00 since late August and is extremely oversold going into the key October USDA Crop Production and Supply Demand reports on Wednesday, October 12th. On top of the bearish macroeconomic news of the past six weeks, the market is also absorbing better weather for September and a general expectation for higher yields in the report. There have been recent indications that yield in areas which were hit with dryness could be down due to low moisture content. However, we still expect to see a jump in yield to around 42.8 bushels/acre, up 1 bushel/acre from last month. While the late start to corn plantings might have pushed actual soybean planted area a bit higher, the FSA data has indicated the opposite. We lowered our estimate of harvested acreage by 100,000 acres. With a record South America supply on September 1st, we also lowered our export forecast by 10 million bushels. As a result, we see ending stocks increasing to 233 million bushels from 165 projected last month. This would push the stocks/usage ratio to 7.4%, a 5-year high.

PRICE OUTLOOK: We see a bounce in January soybeans to the 1211 3/4 to 1266 3/4 zone as a selling opportunity, with 1145 and 1139 as next downside objectives.

CORN

There is also plenty of talk from the early harvest of higher than expected yield. While the weather in July was some of the worst on record, subsoil moisture ahead of the heat was good. Producers used record high profitability on paper to justify spending more on inputs (such as fertilizer) in order to attain optimal yields. On top of that, the weather in September was nearly ideal. We are looking for a jump in yield in this report to the vicinity of 150 bushels/acre, up from 148.1 last month. This would more than offset a drop the harvested acreage of 500,000 acres that we think resulted from the poor weather earlier in the growing season. Based on these changes, we are looking for production to come in around 12.585 billion bushels, which is still below projected usage. We have lowered our estimate of ethanol usage by 25 million bushels and have raised our exports estimate by 50 million bushels due to expected increases in demand from China. As a result, we see ending stocks increasing to 943 million bushels from 672 projected last month. This would push the stocks/usage ratio to 7.4%.

PRICE OUTLOOK: The increase in ending stocks is expected, and even if yield is left unchanged, ending stocks will increase to 858 million bushels (784 million with the acreage adjustment), so it will be tough to see a bullish surprise for the report. Our concern is that the soybean numbers could be negative enough to carry the other grains lower after the report. The long liquidation trend by hedge funds and index funds is a concern. Look for December corn resistance at the 630 to 651 zone, with support at the 575 to 551 zone.

WHEAT

The Quarterly Grain Stocks and Small Grains numbers (which included wheat production were released last week, so a good deal of the uncertainty in the wheat outlook has already been absorbed by the market. As a result, the “by class” estimates will be the most important data for the wheat market in Wednesday’s Supply/Demand report. Hard spring wheat ending stocks could slip below 100 million bushels, which would be the second tightest on record. (In 2007, record low stocks contributed to the rally to $24.00 per bushel.) While this could be the bullish highlight of the report, US total ending stocks and especially world ending stocks data are not showing any abnormal tightness. US ending stocks could drop to 725 million bushels from 761 million last month and 861 million last year. Production was already revised down by 69 million bushels last week.

PRICE OUTLOOK: With the extremely oversold condition, it will not take much in the way of positive news or even some relief from global economic concerns to spark at least a short-covering bounce in wheat. Dryness in Ukraine is still an issue, and there could also be a return to dry weather in the US southern plains that could spark concerns for next year’s supply. Given the huge profitability for corn and soybean producers around the world, the wheat market might also be caught up in a battle for planted acreage. Close-in support for December wheat is 610, with 642 and 676 1/2 as stiff resistance. The double bottom might spark some short-covering ahead, with funds holding a record high net long position.

COTTON

Traders see yields coming down for this report, which could drag production down by 150,000-250,000 bales. Pakistan’s production may also be revised lower. However, there are still concerns that other key exporters like India will be more competitive than the US, which could raise questions on the ability of the US to export 12 million bales this season. It is too early in the marketing year and the current export pace is too strong for us to expect the USDA to revise is US export estimate lower. With that in mind, the US ending stocks might come in at 3.2 to 3.3 million bales versus 3.4 million last month and 2.6 million last year. World demand is still in question as well, so lower US and Pakistan production estimates may not necessarily lower world ending stocks.

PRICE OUTLOOK: Look for a range of 106.80 to 94.55 for December cotton over the near term.

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Below is The Hightower Report’s summary of the most recent USDA Quarterly Grain Stocks report.  This report is available with your subscription to our Daily Commentary. Sign up for a Free Trail.

Full Report: USDA Quarterly Grains Stocks Review – 2011.09.31

CORN

The USDA report this morning was considered bearish with the market called to open down 15-20 cents lower. September 1st corn stocks were pegged at 1.128 billion bushels, which was 164 million bushels above trade expectations and outside of the wide range of estimates.

This is the beginning stocks for the 2011/12 season and if we plug in the new number to the supply/demand report and leave all of the other numbers unchanged, ending stocks are adjusted to 836 million bushels from 672 million posted in the September supply/demand report.

PRICE OUTLOOK: A resumption of the downtrend for December corn leaves 616 and 603 1/4 as next support levels.

SOYBEANS

The USDA reports this morning were considered slightly supportive for the soybean market but a bearish number for corn has caused an opening call of 15-20 cents lower. The USDA pegged September 1st stocks at 214.7 million bushels which was about 10 million bushels below trade expectations. This is the beginning stocks for the 2011/12 season and will tighten the outlook somewhat for the coming season; depending on the October 12th production update.

PRICE OUTLOOK: A resumption of the recent downtrend due to bearish news for the corn market leaves 1187 as next downside target for November soybeans.

WHEAT

The USDA wheat production report this morning was considered positive to the wheat market but this was more than offset by bearish news for wheat stocks and corn stocks and the market is called 5-10 cents lower on the opening. Traders were looking for spring wheat production near 493 million bushels but the report came in at 462.5 million bushels which is supportive. As a result, all wheat production is pegged at 2.008 billion bushels which is 36 million below trade expectations and down from 2.077 billion as the last USDA estimate. However, September 1st stocks came in at 2.15 billion bushels which was 115 million bushels above trade expectations. The report suggests that wheat feeding was not as high as expected.

PRICE OUTLOOK: A resumption of the recent downtrend leaves 606 3/4 as next target for December wheat.

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NEAR-TERM MARKET FUNDAMENTALS: Outside market forces remain weak as hedge funds from around the world seem to be exiting the “commodities” play with a focus on the deflationary aspects of actions in Europe and the US. Fund traders were active sellers yesterday to drive the market sharply lower and the selling continued overnight to drive November soybeans down to the lowest level since March 16th. November soybeans are now down as much as $2.15 in just 16 trading sessions or 14.7% off of the highs. Sharp losses in Asian and European stock markets plus a collapse in energy and metal markets sparked an aggressive long liquidation selling trend from speculators. Poor news for China manufacturing seemed to spark the global economic fears yesterday after traders saw little help from US monetary policy. The USDA confirmed a daily sale of 180,000 tonnes of US soybeans to China yesterday and the weekly sales came in about as expected at 404,400 metric tonnes. This pushed cumulative sales to 39.6% of the USDA forecast versus a 5 year average of 36.4%. Sales of 458,000 metric tonnes are needed each week to reach the USDA forecast. Meal sales were better than expected showing cancellations of 21,200 metric tonnes for the current marketing year and 197,100 for the next marketing year for a total of 175,900. Sales of 120,000 metric tonnes are needed each week to reach the USDA forecast. Oil sales were below expectations showing cancellations of 8,400 metric tonnes for the current marketing year and 10,900 for the next marketing year for a total of 2,500. India vegetable oil imports for the season beginning November are expected to be near 9 million tonnes due to rising consumption. Imports for the current season as expected near 8.2 to 8.5 million tonnes. November soybeans have lost as much as $1.05 1/2 for the week and short-term technical indicators are showing oversold readings. Speculative long liquidation selling, fears of increased harvest selling pressures ahead plus ideas that China is buying more Brazil than US soybeans during a time frame which is normally US dominated are seen as negative forces.

TODAY’S GUIDANCE: While the stocks report next week or the October 12th production report could be supportive news, the short-term focus is on outside market forces and short-term supply does not seem tight enough to offer much of an offset to the liquidation selling trend. November soybean resistance is at 1282 with 1212 as next technical objective.

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NEAR-TERM MARKET FUNDAMENTALS: The results of the USDA crop production and supply/demand report will set the tone for the market today and maybe for much of the week. Traders see US soybean production near 3.025 billion bushels from 3.056 billion last month and 3.329 billion last year. Yield is expected near 41 from 41.4 bu/acre last month and new crop ending stocks at 152 million bushels from 155 million last month and 230 million for the season which just ended. November soybeans closed 8 1/2 cents higher on the session Friday but down 19 cents for the shortened week. More talk of the potential for frost in the northern Corn Belt this week helped to support the market but this morning traders see potential frost just in the far northern sections of the plains and Midwest while others see potential damage to soybeans for Northern Iowa, southern Wisconsin and to northern Ohio later this week. Weakness in outside market forces on growing concerns for European debt issues helped to limit the buying support on Friday and may help pressure the market today; depending on the results of the USDA reports. Weekly export sales for soybeans came in at 444,900 metric tonnes which was near trade expectations. As of September 1st, cumulative soybean sales stand at 37.6% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 32.2%. Sales of 455,000 metric tonnes are needed each week to reach the USDA forecast. However, private exporters reported the cancellation of 240,000 tonnes of US soybeans to China. Meal sales came in showing cancellations of 24,500 metric tonnes for old crop and 172,500 for new crop for a total of 148,000 which was near the high end of expectations. Net oil sales came in at 5,900 tonnes, all for new crop. The Commitments of Traders reports as of September 6th showed Non-Commercial traders were net long 180,210 contracts, a decrease of 3,759 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 173,961 contracts, down 2,779. The selling trend is seen as a short-term negative force. For meal, Non-Commercial traders were net long 57,564 contracts, an increase of 9,824 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 75,535 contracts, up 7,957. The aggressive buying trend from speculators is seen as a short-term positive force. For oil, Non-Commercial traders were net long 43,885 contracts, an increase of 948. Non-Commercial and Nonreportable combined traders held a net long position of 54,140 contracts, up 1,817. China confirmed imports of soybeans in August at 4.51 million tonnes, down 5% from last year and down 16% from July. For the year, imports reached 33.58 million tonnes, down 5.5% from the previous year.

TODAY’S GUIDANCE: On bullish news, a move over 1143 1/4 resistance should be enough to confirm a resumption of the uptrend with 1486 3/4 as next target. On bearish news, support emerges at 1395 and 1373 1/2.

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