The October crop production and supply and demand reports from the U.S. Department of Agriculture yielded surprisingly few surprises for the grain markets, according to Ohio State University Extension economist Matt Roberts.
"The old saying is that bull markets need to be fed, and there wasn't a lot of food in these reports," said Roberts, an associate professor in the Department of Agricultural, Environmental and Development Economics. "These reports may have created an overall bearish tone while we wait for more yield reports from the field, so we'll probably see weaker markets in the next few weeks."
Roberts said the biggest surprise was found in the figures USDA tallied for feeding of wheat in the livestock sector. The department's National Agricultural Statistics Service cut its estimate of wheat feeding by 80 million bushels.
He noted that many market analysts thought the relatively higher price of corn might trigger more wheat feed usage. USDA's statisticians did not fulfill that pre-report assumption by the trade.
"I think the confusion comes from looking at the amount of grain going into feeding compared to the number of animals out there," Roberts said. "It looks like there simply isn't enough feed out there to feed all those animals."
That discrepancy could be an artifact of USDA's estimation process, he said, noting that because of the statistical procedure used, uncertainty is not uncalled for at what is still a relatively early point in the cycle.
In terms of corn and soybeans, Roberts said the market was caught a little by surprise regarding USDA's estimates for soybeans.
"The market was a little taken aback because it was looking for soybean yield to actually go up in this report," he said. "Instead, it went down by 0.3 bushels, and acreage was down 100,000 harvested acres, leading to a net reduction of 25 million bushels of production."
The department also cut soybean exports by 40 million bushels in the report.
Further, Roberts said the estimated ending inventory for soybeans from last month to this month actually declined, while most traders and analysts expected inventories to increase by "a somewhat significant amount."
Looking at corn, Roberts said the reports provided little in the way of surprise to market watchers.
"Exports were cut a little and yield was unchanged, while harvested acres were reduced by 500,000, leading to a 60 million bushel reduction in production," he said. "That's not really that huge given where we are."
The one unexpected item he noted in the corn figures was the September stocks report. It showed 200 million more bushels than expected, which went into the beginning inventories for the current marketing year.
Roberts said livestock feeders should watch the markets in the coming weeks, as they will likely find buying opportunities for feed grains.
"If corn starts to approach $6 on the December futures contract, that's a good buying opportunity for feeders," he said. "When we look at soybeans, I think we'll also see moves back down over the next couple of weeks."
The next opportunity to drive prices higher, according to Roberts, is when the market starts to bid acres for planting the 2012 crop. He said he expects that process to begin in earnest after Thanksgiving, when the market will start looking at balance sheets for the 2012-2013 marketing year to estimate how many acres will need to be planted.
"The corn market will need to bid more acres in," he said. "The question is what price will that take?"