Grains Analysis - CROP REPORT REVIEW

Monday's regular 10:00 a.m. (Central) weekly export inspection report, a gauge of near-term demand, showed a step-back-and-wait attitude by importers after Friday's bearish crop stocks numbers.

Corn inspected by the USDA for near-term shipment came in at 35.6 million bushels, down from 38.9 last week. Beans were 29.7 million versus 32 the week prior; China was in for 21 million of those. The six prior Chinese purchases weekly were 24, 31, 33, 44, 40 and 36 million bushels.

Wheat inspections were 16.5 million bushels, up 2 million from last week but under a year ago by 3 million.

Friday's crop report was a yawner with no major changes from the month prior to impact the bigger long-term pictures. The USDA put ending stocks before the end of our current marketing year (August 31, 2012) at 848 million bushels, up 5 million from last month's report and 280 million under last year. This came from cutting corn for food, seed, and industrial use by 5 million bushels. Oddly, they left exports unchanged. Traders expected the cuts from exports. In the big picture, the 848 number represents dangerously low ending stocks, leaving little to no room for growing problems next season. The stocks-to-use ratio is the second lowest on record since the 1995-96 season and under last year. They raised world stocks to 127 million tons from 1121.6 last month but at this level, it is still the lowest stocks-to-use ratio in 33 years, since the 1973-74 season!

Traders saw the report as bearish on report day, but funds made notes of a very bullish supply-side set up for the New Year. The bears in the market are commercial interests like exporters, grain feeders and users. They see the report and say "thank you" - stocks are up, and most of the bullish news is over. The bulls - index funds - say, "here we go again: tighter stocks coming this year than last and this will be our springboard to pumping billions of fund dollars long in the market on fear of everything from bad weather in South America, or in the U.S., to eventual increased demands stemming from improved economies in Asian markets." They always find a bullish slant to the trade their massive accounts, with a battle cry of 'fear before fact.'

Bean ending stocks were 230 million bushels, up 35 million the month prior and 15 million above a year ago. The USDA came to this by cutting exports 25 million and 10 million from the crush to get the meal and soy oil. World stocks were 64.5 million tons versus 63.6 last month. They left Brazil's production unchanged at 75 million metric tons, even though Brazil's government in November cut its production to 71.2 million metric tons, down 5% from the year before. It's traditional for the USDA to overestimate South American crops and whittle down from there on weather occurrences.

Wheat was equally boring at 878 million bushels, up 50 million on the month as exports were cut by 50 million. This was the result of higher world stocks (208 million tons, a 10-year high), further pressuring US exports.

Traders came in today and said "what report" and quickly went to training outside markets. A higher dollar and lower stocks, weaker crude oil and metals led to grains opening lower; but, like every day last week, we pulled up from opening lows on talk of dry weather in South America.

Traders at the start of the session heard the next 10 days look drier than normal in Brazil and Argentina (the number two and three largest bean producer exporters behind the U.S.) Beans opened down 10 cents and closed up 5 cents.

Just a reminder, the January USDA crop report has final production numbers on this year's crops. The funds will fear it will come in with lower corn and bean production. That aspect should give us a pre-report rally just prior to the report.

Technicals read like this: support for March corn is $5.90. A close under and $5.70 is next. Resistance is $5.98 then $6.12. Bean support in the January contract lies at $11.00. A close under and $10.75 is next. Resistance is $11.35. March wheat support is $5.80 then $5.50 with resistance at $6.10 then $6.35.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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