October USDA Report

Today’s report was widely expected to be bearish and USDA delivered. With the weakness coming into the report, we were hoping the market had the report priced in but the market dropped again in response to the numbers. USDA’s estimates for the US were within expectations but on the higher end of the range for corn and beans. The world estimates were where USDA surprised the market coming out with world bean carryout above even the highest expectations and corn on the higher end. Wheat estimates were bullish almost across the board and tried to help support corn.

Between last week’s stocks report and now this latest supply and demand update, we have dramatically changed the soybean balance sheet for the US and for the world. We still do not have burdensome stocks, but we have more stocks than the market was pricing for. Last week, USDA gave us more stocks with a higher yield from last year and this week they gave us more stocks with a higher yield for this year. USDA raised yield from 50.6 last month to 51.5 this month. The Midwest was burning up all summer but got very good August rains and yields have been surprisingly better than expectations. Brazil is getting the rains they need to get the crop planted and USDA estimates of their crop are even bigger than the Brazilian Department of Ag (CONAB).

That is the bad, but there are still some positives in the bean market too. 325 million bushels is still a tight carryout as it is less than 30 days supply. We still have very strong demand as USDA increased domestic crush and left exports unchanged at high levels. They are confident we will make up for the lost export pace from the port shutdown at New Orleans. There are strengthening indicators of La Nina which has production implications for South America. South America is getting the crop planted timely but they still have the bulk of the growing season to get through before they make a crop. The price of soybeans in China is still very close to the highs from this year and is the equivalent of $19.01. The US has the cheapest beans in the world right now so exports should start to pick up. We are still close to $12 on the board and our basis has been increasing for harvest delivery.

We need to adjust our expectations now. If you need to move beans at harvest or around the first of the year and collect the money we need to be scaling in on any positive moves. When we sell 2021 crop, we also need to be thinking about getting some hedges on for 2022 as well. Corn and beans still need to compete for acres for next year as they both still have historically tight balance sheets, but with such high input prices beans are not going to have to work quite as much so I want to be more aggressive on 2022 bean sales than corn.

USDA was not nearly as bearish on corn as soybeans. We still have very tight corn carryout estimates for both the US and the world but USDA raised them both from last reports. They did raise corn yield two tenths of a bushel from last report, which is not much but the market had expected a reduction. They reduced yield in Indiana, Illinois, and Ohio but raised it in Minnesota and Iowa. The rains in August helped the yield in the drought stricken areas. Corn basis in the Midwest is the strongest in 9 years for harvest time according to DTN’s cash index which indicates very strong demand. Higher energy prices, although not helpful for reigning in fertilizer prices, do support corn demand for ethanol. Corn prices in China had made new lows for the year a few weeks ago but have sharply rebounded due to adverse harvest weather in corn producing regions. Corn in China was at the equivalent of $9.94/bushel this morning which is still very strong. Where beans are making new lows on the charts, corn is just back to where we were at the end of September so the charts do not look nearly as bad.

I think we can be more patient on corn than we need to be on beans, but we still need to shift our range lower in the near term. Basis is still historically very strong across the whole country and now that we are getting our harvest behind us, basis has leveled out in most markets down here. It has even rebounded already in some. When we make a move back toward $5.50 we need to be scaling in more sales. This will not be a bad level to start on next years crop as well, but I am not nearly as eager to get corn sales on as I am for soybeans.

Wheat took most of the headlines from the USDA report today. The USDA lowered US production by dropping harvest acres and yield. This is the lowest production estimate in 19 years. They did drop feed usage since the price has pushed wheat out of many feed rations but left exports unchanged. They are estimating US carryout at the lowest in 14 years and they dropped world carryout as well. The combined production of the top 8 wheat exporting countries in the world (which control 90% of the world wheat trade) are projected to have the lowest production in 14 years. There is also not much of a fund position in wheat contracts right now either.

With the cost of inputs, $7+ wheat is not as attractive as it would have been a few years ago but it is still profitable. There is still much of the country in a significant drought which makes winter wheat production a big question despite the market trying to attract acres. If you know you are planting wheat, get some sales on the books between $7 and $7.50. You do not need to go crazy but get up to 25% of expected production. I hope that it is the cheapest we sell.

USDA did not change cotton much today. They actually dropped their production estimates down 3% from the Sept report. The shocking rally that cotton has made over the last two weeks was due to the damage the Indian crop sustained from the Typhoon. I think today’s trade despite USDA actually lowering production was due to the market getting a reminder that the US is going to have a crop 23% bigger than last year and the world balance sheet is not in danger of running out at this time.

Sell 2021 cotton!! Also be scaling in sales for next year above 90 cents if you are going to plant cotton.