Even an long-time trader like Jim Bower with Bower Trading, Lafayette, Ind., admits that analyzing today's commodity markets from a fundamental standpoint can be quite unnerving.
Speaking at the Minneapolis Grain Exchange February conference call on USDA's Feb. 8 crop reports, Bower said, “We are in uncharted territory. This is a very historic timeframe right now, and this market is global in nature. Everybody's attention is on the wheat market.”
In its Feb. 8 World Agricultural Supply and Demand Estimates, USDA confirmed what many analysts had been thinking and lowered wheat ending stocks 20 million bushels from its January report to 272 million bushels, the lowest number since 1947.
“The market is desperately trying to find a price where it is more comfortable from a supply/demand situation. We are running dangerously low on supply.”
U.S. wheat exports were up 25 million bushels, led by hard red spring exports of 20 million bushels and soft red exports by 5 million bushels. “However, we did see a 5 million bushel drop in feed and residual use.”
Meanwhile, global wheat stocks are the lowest in 30 years, at 109 million metric tons. “In general, this market is desperately trying to tell the global producer that we need more wheat acres in production. From our analysis, when we get hard red spring wheat over $11 a bushel, that will bring more acres into production.”
USDA reported U.S. ending stocks for corn at 1.438 billion bushels, a little more than the average trade estimate of 1.411 billion bushels. Global stocks at 101.4 million metric tons, is slightly above the January estimate of 101.33 million metric tons.
USDA pegged soybean ending stocks at 160 million bushels, compared to an average trade guess of 167 million bushels. Exports are up about 10 million bushels and crush is up 5 million bushels.
“The one negative number for soybeans was the soybean oil stocks number at 2.5 billion pounds,” Bower said. “The expected number was 2.252 billion pounds. It appears as though these high prices have started to slow down the use of soy oil for biodiesel.”
Global soybean ending stocks of 45.8 million metric tons are down from the January estimate of 46.2 million metric tons, “so we're still seeing strong usage globally.”
Bower characterizes the market as more a hedger's market than a speculator's. “Producers are looking at all-time record prices and it's time to lay price floors. If they want to leave the top open, that's fine. But if we keep driving the price of wheat higher, what goes vertically up could eventually come vertically down.”
The Minneapolis Grain Exchange announced that limits on wheat trading increased to 40 cents (effective Feb. 11). Upon Commodity Futures Trading Commission approval, the limits will be removed on the spot months effective Feb. 25 for trading beginning the evening of Feb. 24.
USDA also lowered cotton exports 2007-08 due mainly to the slow pace of export shipments and a reduced import forecast for China. Accordingly, ending stocks were raised to 8.2 million bales.
Estimated world production was raised about 1 million bales, while world consumption was reduced 1.3 percent from last month, as slowing world economic growth is reflected in lower mill use for China, India, Thailand, and Turkey.
Lower forecast world consumption should result in lower world imports, including a 500,000-bale reduction in the import forecast for China. With lower demand, exports are expected to be lower in several countries, including Australia, Brazil, India, and the United States. China accounts for over half of the 2.6-million-bale increase in world stocks.