Source: Golden Ten Data
The USDA did not make much adjustments to the corn and soybean data in the March monthly report. Why is the grain market rising strongly? What factors are driving this? Learn it in one article.
According to Bryce Knorr, senior grain market analyst at Farm Futures, the monthly “World Agricultural Supply and Demand Report” published by the US Department of Agriculture (USDA) is sometimes important, sometimes less important. The March report delivered on both. Although the data for corn and soybeans did not change much, the market's reaction was quite different.
The price of corn did rise by 1.75 cents, which is at least a recovery from the day's low.
The soybean situation was completely different, with the closing up 17.75 cents, 30 cents higher than the low before the report was released.
What is certain is that due to increased exports, a slight drop in Brazilian soybean production, and an increase in Chinese soybean imports, the US Department of Agriculture did lower its forecast for global soybean end-of-season inventories, although the US data remained unchanged.
Global stocks of corn are also estimated to have declined, although the decline is only half that of soybeans. However, the monthly report probably had little to do with the two markets' different reactions.
What caused this different reaction? History may be one explanation; the other is “animal spirit.” Or maybe it's just an opportunity, but it's unlikely to recur in the next few days. However, the next chapter of the story will unfold in the USDA Planting Intent Report at the end of March, one of the most important reporting days for government statisticians and farmers.
Track seasonal trend data
The reason for the puzzling market fluctuations can be found on the price chart. Both CBOT corn and soybeans are trying to break away from a multi-month downward trend by rebounding from February lows.
As can be seen from the chart below, in normal years—those not in a bullish pattern— soybean prices usually bottom in February and then begin a rebound in March. Although this rebound peaked during the reporting period at the end of March, at least prices have stabilized.
In normal years, the old crop corn market bottomed out in December after experiencing seasonal weakness in the final harvest, then began to rise in early March (now), and did not actually rise on average since then.
The 2407 contract hit an early harvest low in September, then hit a new low again in December, but the January rebound attempt failed, causing another new low in February, then cautiously rising. The reaction to Friday's March report may suggest traders don't think this corn rally will be better than previous attempts.
Are interest rate cuts expected to heat up?
Another potential reason for the market's different reactions may be unrelated to economics or technical analysis. The market reaction this time may have triggered expectations of a record high interest rate cut in the stock market last week.
This fervor isn't limited to stocks. Certain so-called risky assets, whether old or new, also joined the event. Gold, abandoned for years, even decades, reached a record high last week. The same is true of Bitcoin, which went from a financial future to an outcast, and last week experienced an amazing recovery, reaching a record high after losing 75% of its value.
Soybeans have long been the darling of people who make quick money. Money managers have been actively selling corn and soybeans since at least the fall. But they recently began buying corn while increasing their bearish bet on soybeans. So maybe these participants were looking for another racehorse and chose soybeans, hoping this oilseed would become the next big hit.
Will supply be tightened?
A one-day trend cannot become a trend, so the reaction of the USDA monthly report may soon subside. Calm traders will wait until March 28, when the USDA will update quarterly grain inventory data and publish the first survey-based estimates of farmers' planting intentions in 2024. These two are likely to have enough impact to really affect the market.
The acreage report lays the foundation for new crops and future growing seasons. Grain stocks are linked to old crops, and will only have an impact on new crop futures if supply is tight enough to drive the new crop market.
Quarterly soybean inventory data may provide clues about the final size of the soybean crop in 2023, but other than that, it shouldn't generate much sparks.
Quarterly corn stocks, on the other hand, are an indicator of feed usage (the amount of feed used is greater than the amount used to produce ethanol or export). But unless the weather forecast already threatens corn production, a truly amazing event may be needed to significantly boost the corn market.
So, the waiting game for the USDA's March monthly report is over. Let's look forward to the next important report!