After the Bell: USDA Cuts Corn, Soy and Wheat Carryovers, Prices Rocket Higher

Posted on Tue, 01/12/2021 - 15:27

Corn: Futures jumped sharply higher and old-crop futures closed up the 25-cent trading limit, with limits expanding to 40 cents on Wednesday. March corn rallied 25 cents to $5.17 1/4 and December was rallied 16 3/4 cents to $4.57 1/2. Prices rocketed higher after the USDA cut the 2020 crop more than expected, reported smaller Dec. 1 inventories from the smaller crop and record use in Q1, leading to smaller U.S. and world carryover projections. U.S. corn production estimated at 14.182 billion bu., down 325 million from November and 288 million bu. below the average trade estimates. The estimate fell below the lowest trade estimates as USDA trimmed harvested acreage 60,000 acara and slashed the national average yield 3.8 bu. from November to 172.0.  Corn stocks on Dec. 1 were 11.322 billion bu. 629 million below the average trade estimate and below the lowest trade estimate of 11.59 billion bushels. Implied disappearance last quarter rose to a record.   

Soybeans: March soybean futures closed up 45 3/4 cents at $14.18 1/4 and hit a contract and 6.5-year high. March soybean meal futures gained $18.60 at $465.40, soaring to a contract high. March bean oil closed unchanged at 42.63 cents. Traders expected bullish USDA numbers in today’s supply and demand reports and funds were ready to run prices higher. USDA’s final 2020 soybean crop estimate is down 35 million bu. from November and 23 million bu. below the average pre-report estimate. Soybean stocks in all positions on Dec. 1 of last year were 13 million bu. above the average pre-report trade estimate but down 9.8% from year-ago. On Dec. 1, on-farm stocks totaled 1.31 billion bu., down 14% from year-ago.   month. Before the reopening this morning, USDA announced new soybean sales, adding to the bullish sentiment Now, trader focus will return to South America weather and Chinese demand.   

Wheat: March soft red winter wheat futures closed up 30 1/4 cents at $6.65 and hit a contract and 6.5-year high today. March hard red winter wheat futures gained 28 1/2 cents at $6.22 1/2 today and hit a contract and six-year high.  The wheat markets got a boost from friendly USDA numbers today but also on good spillover buying interest from very strong gains in corn and soybean futures. U.S. wheat stocks in all positions on Dec. 1, 2020, were 21 million bu. below the average pre-report trade estimate and down 9.1% from year-ago. USDA’s all winter wheat seeding estimate is up 1.576 million acres from last year and 463,000 acres above the average pre-report estimate. U.S. wheat carryover for 2020-21 was cut 26 million bu. from last month and is 23 million bu. below the average pre-report trade estimate. It is a six-year low if realized.  

Cotton: Cotton futures finished high-range with gains of 127 points in the March contract, 129 points in the July contract and 63 points in new-crop December cotton. Bulls reacted favorably to USDA’s report data. But frankly, given that the U.S. crop was cut 710,000 bales more than expected and ending stocks dropped 800,000 bales more than anticipated, even stronger gains wouldn’t have surprised us. Bulls have plenty of fodder to extend gains, especially if the grain and soy markets continue to rise. Funds were net long 70,644 cotton futures contracts as of Jan. 5 and have added to their length since then. While that’s a big position, at 30% of open interest, there’s still room for funds to add to net longs.  

Hogs: Futures rose with some deferred futures months touching new contract highs. April hogs rose 57.5 cents to $73.525 and June gained 97.5 cents to $84.975, setting a new contract high at $85.10. The hog market found support yesterday on early weakness and continued higher today. Some of the buying is likely from investors moving into commodities as a hedge against inflation. Cash hogs were weak at midday with fairly light negotiated purchases.  Processors have been pushing daily slaughters to near record totals every day, which is a necessity as supplies of market-ready barrows and gilts are heavy.  The big daily slaughter runs are also helping to keep supply chains moving.  While that’s preventing more hogs from backing up in the production system, it’s also adding more pork to the market.  But demand is holding up in the domestic markets and traders will be watching the weekly export sales data Thursday after recent improvement in 2021 business.  

Cattle: Live cattle futures were a mixed bag today. February through June futures settled 2 ½ to 92 ½ cents lower, while August through December futures finished 90 cents to $1.00 higher. Feeder cattle dropped to their lowest level since late November, with futures settling $1.70 to $2.925 lower through the August contract. Nearby live cattle contracts remain at a premium to last week’s cash action that ranged from $110 to $112, generating an average price just above $111. That has limited buying in those contracts as the market awaits more clues regarding this week’s likely action.  The tight feed supply picture painted by USDA and the coinciding price spike for corn and wheat futures weighed heavily on feeder cattle futures today. On a more positive note, feeder steers and heifers traded at steady to $2 higher prices at an Oklahoma City feeder cattle auction today.