A Big Bearish Day For Ags

July 01, 2009


"This report does not provide a supply cushion," Kimberley says. "While these acres may help to increase supply modestly, the cushion will not be as great as some may have expected. Achieving trend line yields or greater will be most important to achieving adequate supply."


Soybean trading was confused because of this. The most active contract, November 2009 - when the new harvest comes in - dropped 2% to $9.64½ per bushel. Immediate July soybeans, on the other hand, traded up above $12 a bushel because of current demand and current tight supplies. That's why they're called "futures."

A note about the difference between acres planted and area harvested: Farmers always know that not all of the acres they plant will make it to harvest - be it because of disease, frost or flooding. The USDA accounts for this by looking at historical statistics and working some statistical magic to come up with a forecast of area harvested. If the growing season is better or worse than expected, that number changes. For soybeans, if July and August are wetter than normal, the risk of rust increases - that lovely blight that can spread through the crop, reducing yields or causing whole fields to be written off as a loss. If the weather performs as usual as hot and dry, the soybean harvest should be a good one.


Soybeans (S, CBOT)

Soybean performance Feb - June 2009




The wheat numbers are a classic case of needing to read underneath the headline numbers to understand market reactions.

Acres planted with wheat dropped 5.3% to 59.775 million acres, compared with 2008's 63.147 million acres. The USDA is forecasting a whopping 15.6% of all wheat acres planted this year not make it to harvesting - compared with 11.8% last year. Between the lower acres planted and the larger forecasted acreage loss, the USDA is expecting 9.4% fewer acres of all wheat to be harvested this year.

Winter wheat accounts for 72.7% of all wheat planted. It also accounts for the highest rate of lost acres - the USDA forecasts that 19.9% of acres planted with winter wheat will not be harvested in 2009, likely due to the wet spring. In 2008, 14.4% of acres planted with winter wheat were not harvested.

With all of these decreases, you'd think the picture would be bullish for wheat. Nothing could be further from the truth. Analysts, and the market, see the report as very bearish, citing ample current stocks and weak demand. As of 1:44 p.m. Tuesday, the most active contract, Sept 2009, was down 17 cents to 540 6/8 cents - down from the previous day's close of 557 6/8 cents. The July contract briefly hit a six-month low of $4.9575.


Wheat (W, CBOT)

Wheat performance Feb - June 2009


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