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Wednesday, April 09, 2008

The WASDE Whee!

I wrote recently about how wet weather has delayed plantings of corn, soybeans and more in big areas of America's breadbasket. If those plantings get pushed much later, the supply/demand squeeze in grains could begin in earnest.

There isn't much room for error. Latest piece of evidence: the USDA’s World Agricultural Supply and Demand Estimates (WASDE).

Now before we get to that, let me take you back to the end of March, the USDA doled out its planting intentions report, and that sent some shockwaves through the market – too much wheat, not enough corn, etc. The Cliff notes version:

* Corn plantings estimated at 86 million acres in 2008, down 8% from last year when corn planted area was the highest since 1944.
* Soybean plantings estimated at 74.8 million acres, up 18% from last year, but 1% below the record high acreage in 2006.
* Wheat plantings estimated at 63.8 million acres, up 6 percent from 2007.

Basically, farmers are planting a lot and that weighed on prices. But the ink wasn’t dry on the paper of this report when farmers started hemming and hawing. It wasn’t too late for some to switch to corn. And wet weather started pushing back the planting schedule – a potentially ruinous development for farmers (and bullish for prices).

But then today we got WASDE.
Some of the more juicy bits …

WHEAT – projected ending stocks remained unchanged, but exports are projected 50 million bushels higher as export sales and shipments remain strong.

My take – that’s actually bullish, considering how negative some traders were turning on wheat.

SOYBEANS – soybean ending stocks are raised 20 million bushels to 160 million, still down sharply from the record level set in 2006/07. Despite record high soybean prices, exports have remained strong, especially to China, where imports from the United States are likely to exceed the 2004/05 record.

My take – higher ending stocks would be bearish, except that the continued strength of sales to China should hearten the bulls.

CORN -- corn ending stocks for 2007/08 are projected 155 million bushels lower this month due to increases in corn used for animal feed and residual use and exports. Exports are projected 50 million bushels higher based on the strong pace of shipments and large outstanding sales balances.

My take – Yeah, that’s bullish.

We'll have to see how this plays out in the DBA, the agriculture ETF that holds positions in wheat, corn, soybeans and sugar. It hasn't moved much this morning, but I think this WASDE report is one more push for the bullish case.


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