CORN SURPRISE

                Monday began with the weekly export inspection reports, a gauge of how near-term demand is going.  Wheat was as usual, weak with 11 m.b. inspected for near-term export versus 10 the week prior and 20 m.b. a year ago.  This was equal the four-week average of 11.4 m.b.  Demand is expected to return as a pricing source come April as the winter crop breaks dormancy and greens up, while importers to U.S. ports for June on out delivery.

                Corn inspections were 20.5 m.b. versus 29 the week prior; 21 a year ago, and four-week average of 23.4.  The number is consistent with softer sales ahead of major U.S.D.A. crop reports such as today's.  Importers like to wait for these reports for direction on their marketings.  These are the final production numbers so importers change strategies on changes.

                Soybean inspections came in at 41 m.b.; versus 37 the week prior; 26.9 a year ago, and equal our strong four-week average.  Key-player China, was in for 29.9 of the total versus 18.6 the week prior.  China's imports in December were a record total and up 65% over their November purchases.  January's off to a good start but it is mid-to-late January that the trade will watch closely for a slowing of Chinese purchases on fear-talk of record production out of South America could lead to cancellations of previous U.S. buys for future delivery and switch to South American ports.  I still feel though, U.S. sales could seasonally slow into the next several months, cancellations are unlikely based on China's immediate needs and the continued goal to meet longer-term strategic grain reserve stockpiling.  We will find out their intensions as soon as South America is entering key growing periods, by late February yields will be made there.

                Now the big show - our long awaited final crop production numbers were released at 7:30 am Central Time today, Tuesday.  Let's start with wheat.  The U.S.D.A. sharply raised our projected ending-stocks come the start of wheat's new marketing year, June 1, to 976 m.b. up 76 m.b. from last month's report.  They raised world-ending stocks another 6 M.M.T. as well.  This came as they adjusted downward export projections.  This is what keeps wheat bearish on near-term fundamentals and in a follower's roll to corn.  The winter-planted acreage report looks to bring a peak to record-ending stocks and begin the future decline into 2011.  They put all winter wheat planting this fall and to come to harvest in May at 37.097 million acres.  This was under the pre-report estimate of 40.9 and under the lowest estimate of 38.3 M.A.  We came in well under last year's 43.3 as well.

                The breakdown of winter wheat acre varieties reads like this: 

Hard red winter acres 27.8 M.A. versus to average guess of 30.4 and the year prior 31.6.;

Soft red winter at 5.9 M.A. versus the average of 6.9 and a year ago 8.3; and,

White winter at 3.3 versus the average of 3.5 and 3.353 in 2009.

                The reductions came mainly in Midwest corn and bean-states that couldn't get those crops harvested in time this fall to plant winter wheat.  This sets up thinking that the suppressed mindset of wheat growers over record-ending stocks didn't care to plant any variety in any location, lending thought spring wheat acres to go to planting this May could also see acreage declines setting up a positive trading situation into this fall and 2011.  Near-term, wheat will follow corn.

                Corn was the big surprise coming in negative.  Corn production was put at 13.151 billion bushels; up 332 million bushels from the average pre-report trade guess and over the highest of 12.996 and over the last report of 12.921.  They came to this by raising yields to 165.2 bushels per acres versus 163.7 on the last report.  The government decided that the 300 or 500 M.A. still unharvested will eventually come in, even if it takes until spring and attached normal trend line yields to it, until proven different.  They noted that this report will not be the final production number for the 2009 crop as another will come in March.  They added 89 m.b. to our ending-stocks to 1.764 versus the pre-report estimate of 1.613.   These were not big changes but market had rallied from 3.80 three weeks ago to 4.27 last week and 4.25 yesterday on fear the report could be bullish.  This had longs fat with profits scrambling to get out today.  The report trims the long profits near-term, but doesn't change the long-term into spring and early summer when we expect further highs.  The question is how much profit will the funds take out this week.  Support Wednesday is 3.80 then 3.74.

                Soybean production was put at 3.361 b.b.; 24 m.b. over the pre-report estimate and 41 m.b. over our last report.  This came as they raised yields to 44 b.p.a. from 43.3, a small adjustment and in line with trade thoughts.  They raised exports and domestic crush use, lowering our ending-stocks by 10 m.b. to 245 m.b., but this was 7 m.b. over estimates.  So, a little higher production and a little lower inventory, nothing that should change long-term thinking.

                We saw beans rally from 9.90 three weeks ago to 10.75 last week, prior this report.  They took $0.80 profit prior the report late last week on expectations and another $0.35 into midsession today so we question how much more they will bank.  9.60 is first support Wednesday.  If we get a close under there, 9.20 is next.  If 9.60 holds, we could come back to 9.90 fairly quickly.  Remember, the market strength monthly comes from demand and the report increased demand exports lowering inventory.  If China remains an active buyer through January into February on U.S. ports, traders could discount this report quickly.  This was classic pre-report trading as the three weeks prior all had corn, beans and wheat trade higher prior the report by trading fear before fact.  You cannot extend fear trading unless the report gives facts that surprise the market.  This report did not.

                OJ futures did the same thing last week when they rallied into Friday, closing up the limit on fear the Florida freeze would damage the oranges.  When the freeze happened Sunday into Monday, everyone who bought long the week prior, sold Monday.  The old adage, Buy the Rumor, Sell the Fact.     Just a note, my Wednesday web talk will be this Thursday instead for all clients at 2:00 pm Central Time.  Next grain update is Friday on PFGBEST.com.