The dread of this report felt like a sword hanging over my head. After how weak the corn and soybeans have been over the last two weeks, I felt like we had pretty bearish numbers already priced in but there is always some sense of dread around the uncertainty of USDA reports. In many years the Sept report is not very exciting because we do not have enough actual harvest yield data yet and USDA generally does not change acres on this report. This year, they announced that they did have more FSA data than they usually do and they were going to make adjustments to the acreage today rather than waiting until the October report. Acreage has been a hotly debated topic since we were surprised on the March and June reports by how few acres there were in corn and soybeans. Then on Wednesday of this week, USDA accidently posted the FSA acreage data to their website but quickly removed it. After the market closed on Wednesday, USDA posted the data with a notice saying it was supposed to come out on Friday but since it was posted by accident they were going to go ahead and post it so everyone could have it. The FSA data is not the same acreage number that NASS uses in the balance sheet (due to abandonment and other factors) but it gave the market a preview of what we were going to see and allowed the market to trade reasonable expectations of what the USDA number would be.
The numbers USDA gave us today were right in line with what the market was expecting. They raised old crop carry outs just a little bit in both corn and beans but that was widely expected. Also as expected, they raised corn yield 1.7 bushels from the August report and beans 0.6 bushels. Raised acreage in corn by 600,000 acres and lowered bean acres by 300,000 which were both in the range of expectations. USDA made just a few minor adjustments to demand increasing corn feed usage and exports and also decreasing domestic crush in beans but raising exports enough to offset. Final carryout in corn was up just 166 million bushels to 1.408 billion bushels and up 30 million bushels to 185 million in beans. This is higher than last month, but still very tight by historical standards. There are also still a lot of unknowns about this crop that will be hotly debated going forward on both the supply and demand side of the balance sheet.
I am going to give both the bullish and bearish arguments for corn and soybeans. In a normal year, small changes in acreage and yield do not mean as much this time of year but with such tight carryouts and strong demand any little change has large effects on price. Buckle up, the volatility is going to be with us for a while longer. Full disclosure, I would count myself as cautiously bullish now after the hit we have taken in the markets. I think we have room to easily get back to around $5.50 on corn and back well over $13 on beans as long as we do not see any demand destruction. Chances of getting well above that are not zero, but those odds have gotten slimmer over the last few weeks.
Bearish
Let’s get this one out of the way first. The analysts that are bearish point to the fact that in 15 out of the last 20 years, when the sept yield estimate on corn was higher than the aug estimate, the final estimate in Jan was even higher than sept. Their logic says that corn yield may continue to get higher through the next several reports adding some additional cushion to the balance sheet. The history on bean yield direction is not as clear; it is only 12 out of the last 20 years. Covid cases slowing the world economies and lack of Chinese corn buyers over the last few weeks. Brazil will plant record acreage this year and have a chance to add record crops to the world balance sheet to help add some cushion to meet the additional demand. It is possible that USDA will increase acres again in the next report. The main points for the bears are that even though we had a dry start and major drought in many growing areas, we got lots of late season rain and there is no threat of frost. Bears believe that this crop hung on and benefited from the rain and the extended growing season.
Bullish
Bulls point out that a lot of the additional acreage was added in the Dakotas and western corn belt that was absolutely a blast furnace for most of the summer. Forage was nonexistent and summer crops took it on the chin. Lots of corn acres were either chopped to make silage to replace lost forage acres or simply abandoned. We are going to have to adjust for that either in yield or acreage. Condition ratings for corn are the second lowest in the last 6 years and even lower than last year even though yield is estimated 4 bushels higher. Soybean ratings are also the second lowest but have been trending a little higher. Condition ratings during the middle of the growing season are generally looked at as good indicators of yield. They are not very good indicators very early or very late as crops start to mature. Bulls point to strong demand by China for both corn and soybeans. South America tapped out of both right now so China is going to have to come back to the US despite their recent lull. Late season rains did not add any yield, but stopped the yields from getting any lower.
What To Do
I think the market has put good support in after this report. I believe this report has neutralized the selling but we need some sort of catalyst that is unseen at this time to have a chance to reach back to $6 corn and $14 beans. I do not think we need to be holding out for those levels to be making sales. We have priced in a bigger crop and a lot of demand uncertainty. Late season rains at very least helped yields from getting any worse and took the top off the market even while we can debate how much they actually helped. Luckily we made bigger crops in the southeast than many thought possible so we in the southeast have more bushels to sell. Be looking for a move back near $5.50 on corn and $13 on beans to be scaling in some sales.
Once everyone gets their corn crop out and bins full, they are going to decide what they need to start shipping in January and then start selling basis. The way logistics in the world are going right now, there is a good chance we see some significant train delays and good quick ship opportunities. If you want to start shipping corn in the beginning of January, you do not want to be the last one selling your jan bushels. Start shopping basis for Jan now.
Unless South America just absolutely knocks it out of the park and we lose demand somehow we are going to have a fight for acres in the US again next year. The market only cares about cost of production when it is trying to attract acres and it will need them next year. I do not think we need to be doing any new crop at this time.
Wheat
Wheat has really taken a hit this week as the acreage leak from FSA looked to add more wheat acres and Canadian wheat estimates were trending higher. The world wheat balance sheet has tightened up enough to support prices but with the uncertainty about acres and crop estimates creeping higher, the funds decided to head for the door. USDA’s ending stocks for US wheat was lower than their August estimate which should provide support for the market. USDA may still be overestimating wheat yield and underestimating wheat feeding so that number may need to come down. Their world wheat carryout number was higher than last month. Wheat importing countries around the world have been having to raise their tender prices for weeks now to try to find offers. Russia is increasing export tariffs.
Cotton
USDA continues to absolutely baffle me on cotton. Condition ratings were sharply lower for Texas cotton this week which I have no explanation for. Everyone I talk to has talked all summer about how massive the Texas crop is going to be and nothing out of the ordinary happened last week. USDA did finally adjust acres lower on this report which was widely expected. We have believed they have overstated acres since June. They also raised yield which was widely expected. What provided cotton support today was massive exports this week. Yield is getting better and the markets are increasingly worried about world economic growth which are the two biggest things that should push cotton lower but somehow cotton hangs on. I do not have much in the way of explanation but maybe the bigger than expected exports by China are telling us the economy is not as bad as some other indicators? I still think we need to be selling cotton around and above 95 cents.
