GRAIN markets both at home and abroad have taken a blow this week at the hands of the US Department of Agriculture (USDA) - who issued an unexpectedly bearish set of June 30 US stocks and acreage estimates, particularly for soybeans.
In a nutshell, the USDA report confirmed that (statistically anyway) there are more than sufficient US stocks available of all commodities to get consumers and exporters through until their potential bumper harvest kicks off in September/October.
And while the US isn't necessarily the "be all and end all" for the global market, they do tend to make the most noise - and their Chicago based futures markets are the most visible and most widely used "hedging instrument" for the global trade.
The report's impact on this futures market was nothing short of spectacular, with men in suits running for the exits as the USDA's revised numbers hit the wires, with heavy fund selling pushing CME soybeans, corn and wheat futures down hard.
Locally, this resulted in a circa $3 to $5 a tonne shakedown in Australian grain values by Tuesday morning.
And while we may see some tentative "bottom picking" type consumptive interest on the lower values - Egypt's GASC, for example, has already issued a post report wheat tender for August shipment - there has been psychological and technical damage done to the overall market structure.
In the short to medium term at least, this negative sentiment is likely to dominate regardless of the value proposition at the cheaper price points on offer, and regardless of regionalised crop concerns that now include: excessive rains and flooding on the Canadian prairies; a dry outlook for southern Queensland/ northern NSW and; poor progress of the Indian monsoon.
In terms of the post report reaction, soybeans bore the brunt of selling and perhaps remain the most vulnerable.
While they are not a market we generally watch as closely as corn and wheat, they are relevant in terms of an overall "directional" market view, and clearly have a strong influence on oilseed products.
The USDA pegged soybean area at a record 84.84 million acres, which was up about 2.69 million on trade expectations, and up 3.35 million on the USDA's March planting intentions report.
At the same time, the USDA's soybean stock estimate was pegged at 11.02 million tonnes which was 730,000 million tonnes above the average market guess - likely resulting either from larger than expected May imports, or larger than expected old crop production.
Either way, the soybean market took it in the neck on Monday night - with the new crop November futures contract dropping almost six per cent in the session, in the process breaking down below key technical levels around the US1165 cents a bushel to US1170c/bu zone.
This area had been a prior support area during March/April - and also lined up closely with the 61.8pc Fibonacci retracement area from the May high of US1279c/bu to the US1088.2c/bu low from late January.
This low water mark about US1088c/bu now looks to be an achievable technical target for a salivating speculative sector, who still have a substantial soybean long position of which to dispose.
Corn futures, meanwhile, had already broken below contract lows for the December contract, and the additional post report selling pressure - while not as bad as for soybeans - now puts the market very close to "continuous spot month" chart support at the December 2013 lows about US410c/bu.
Clearly, there are other factors at play in the local and global grain markets right now and the unexpectedly large bearish changes highlighted mark a significant turning point for overall market sentiment particularly for the speculative sector.
Matthew Pattison is the trading manager at Pentag Nidera.
