October 1, 2019
GDT Inches Higher, Quarterly Grain Stocks Surprises
Released earlier this morning was Global Dairy Trade's (GDT) Event 245. Overall the index grew 0.2% to an average price of $3,306 per metric ton. In total, 38,716 metric tons were offered in Tuesday's trade.
Products to note in today's GDT event began with Cheddar, which lost 3.4% in value to $1.685/lb. Despite a lower cheese price in GDT, CME cheddar blocks and barrels were able to carve out 3.25 & 4.25 cent/lb gains on Tuesday, respectively. Butter fell 0.2% to $1.825/lb. Skim milk powder added 2.7% while whole milk powder declined 0.2%. A full view of today's action can be viewed above.
The USDA released their Quarterly Grain Stocks report on Monday. A state by state breakdown of corn and soybean positions can be seen below:
Prior to the report, the average trade guess for corn and soybeans were as follows:
CORN: Range of Estimates: 2.150 - 2.511 billion bushels
Average Estimate: 2.418 billion bushels
SOYBEANS: Range of Estimates: 940 million - 1.035 billion bushels
Average Estimate: 981 million
The report was released at 11:00 Central time and as spelled out above, revealed a corn ending stocks number of 2.115 billion bushels. Soybeans were published at 913 million bushels. The distance between expectation and reality over the last 35 years can be seen in the charts below.
The average trade guess for quarterly corn inventory scored the third largest miss in 35 years. For soybeans, it was the 7th largest. The fact that the average estimate was that far removed from the published numbers caused an immediate response in markets. Corn finished 16 cents higher while soybeans ended the day 23 cents higher. Corn followed up Monday's move by gaining an addional 4.5 cents Tuesday and soybeans added another 13.5 cents/bu. See Charts.
While it has been a while since such movement has found its way into the grain complex, a sudden change in inventory causes massive shifts in mindset. A declining ending stock estimate for the 2018/19 marketing year will have follow through in the coming marketing year as well. Not all of yesterday's projected decline needs to show up in the October WASDE report, however, smaller beginning stocks will likely filter through to become smaller ending stocks in the coming marketing year. A sub-two billion bushel corn inventory will put more pressure on yield to carry weight through harvest. Given the large psychological barrier that $4/bu presents, buyers are encouraged to contact us to talk through appropriate strategies moving forward.
As a side note, today our firm, Commodity Risk Management Group (CRMG), completed and announced our merger with Rice Dairy, LLC. Going forward, we will continue to provide weekly dairy newsletters to all that subscribe, however, the format is likely to change. We are very excited about this merger and look forward to providing future dairy reports as a joint effort with the Rice Dairy team.