October USDA Report

After giving us a bullish stocks report last week, USDA once again surprises the market with a negative report on corn. The market was looking for a drop of yield by a few bushels but USDA raised their estimate by 0.2 bushels from the Sept report to 168.4 bushels per acre. They also only made a very small adjustment to harvested acres. Carryout was lowered to under 2 billion bushels due to the reduction in carry in from the last report. Balance sheet has very little buffer for any more adjustments lower in yield or acres. Fortunately, the market has a lot of news to trade on this week and USDA is only a small part of it. Todays close is a setback, but we did not close limit down. We still have a blizzard to price in the market. There is still record uncertainty for this time of year as we are not sure how much is in the field, much less what is going to happen to it with this winter weather. The yields out of the field are more important than USDA’s estimates. The early yields are not that far from trend so far, but remember the early corn will be the best corn. We do not need to panic here. Keep orders working around $4 Dec and whenever you price any 2019 corn, you need to be selling 2020 corn too!

USDAs report was a little bit bullish to soybeans. They lowered yield a whole bushel below Sept and about 0.2 below the market expectations. Harvested area was adjusted lower as well bringing carryout down even further. At the beginning of the year, we had such a large buffer we thought it would take years to work through without a deal with China. Now due to the historic weather, we have trimmed it back significantly even without a deal. If we do get a deal, or even a partial deal we will see some significant upside. Like corn, soybeans have had a big news week. The blizzard in the Midwest will stop any further crop development with the crop still very far behind. We had a long summer with the heat in Sept, but it is over now and not all the crops reached maturity. We have had huge domestic demand. China is buying some beans and South America is dry. It is still a bit too early to matter much but the market is watching very closely now. There is still rhetoric on both sides of the trade talks, but Trump said he will be meeting personally with the delegation this week (I am not sure if that is a good thing or a bad thing). There are some rumors of a “mini” trade deal that may be announced soon to include ag purchases and stop additional tariffs but push the thornier issues down the road.

We need to keep scaling in sales above $9. Yes there is significant upside from here, but its been a long time since we have been over $9 and there is downside if a couple go against us. We need to be managing risk now. Scale in sales!

Wheat often takes a back seat to the other major grains this time of year and this is no exception. Wheat was slightly negative but more of a follower. USDA left Russian production estimates the same and lowered Australian production slightly. They raised domestic and world carryouts. Wheat has followed corn and still trades close to $5. Wheat has some work to do to attract acres for next year in the Southeast. $5 new crop futures should be $6+ new crop wheat.

USDA left cotton almost unchanged, lowering domestic carryout just barely. Cotton trades at 2 month highs on hope with US/China trade talks and harvest weather. USDA did not give cotton a boost, but also did not push it lower. We need to be sellers on any move about 65 cents as we move through harvest.