August USDA Report

We got another shocking report from USDA. We thought we would just be talking about acreage but somehow USDA was able to bring something unexpected back into the conversation once again. USDA estimated acres at 90 million which was high but not the real shocker on this report. They also estimated yield at 169.5 which was 3.5 bushels higher than the last estimate. The big yield increase was the major shock on this report. FSA released prevented plant acres today as well. They had corn estimated at 11.2 million acres of prevent plant corn. That means intended acres of corn went over 101.2 million this year. This was a very bearish crop report and has caused an exodus of fund money who were long corn. We can argue with all the numbers but these are the numbers we have to trade for a while. However, there are some positives.

Basis is going to get stronger. This will stop any movement and add to what was already going to be a very strong basis. Even if you take all the USDA numbers as gospel, a good majority of stocks will be located in the western belt which will be expensive to get here. Southeast crop is very small which will also contribute to higher basis. Basis will be even stronger!

The crop is very late so there are still very many questions about this yield. We have never planted a crop this late. Using USDA’s data, 37.8 mln of the corn acres were planted after May 26th and much of that was planted in less than ideal conditions. We have no precedent to judge yield potential on a crop planted this late much less in poor conditions so I think it is very optimistic to estimate yield at only 7 bushels less than last year. This yield estimate did not use any objective observations such as ear weights or kernel counts due to the lateness. An early frost will cut this crop short and we are a long way from having an idea of when the first frost will occur. Soils are drying out in the eastern corn belt and condition ratings have been trending lower. The market will very much have to stay in tune with forecasts. Yield uncertainty is our best friend right now. With the loss of demand and decent crops elsewhere in the world, I do not see very good chances of beating the June highs but if we have more yield issues, we could trade back to the $4.50 range.

Hard to call a 755 million bushel carryout bullish, but acres came in well below expectations and yield was left unchanged from the last report. Exports were lowered that partially offset but carryout was estimated below expectations. Thoughts were that a lot of prevent plant corn acres actually came out of soybeans due to higher payment for corn PP. Much like corn, yield is still a very big question due to the unprecedented lateness of the crop but we have not seen any positive progress on trade to lend support. Soybeans briefly traded higher today after the numbers came out but fell due to sympathy with corn trading limit down. Soybeans should hold support and look to weather and progress on trade.

Today was not a big data day for wheat compared to corn and beans, but what data we got did lean bearish. Wheat traded lower mostly in sympathy with corn. USDA did lower Russian production by 1.2 million tonnes and EU production by 1.23 million tonnes. Basis will remain strong on wheat. 

Cotton was trading down hard before the report and the numbers looked bearish. Cotton did not close near the lows of the day as most of the info was quickly priced in. USDA raised yield 10 pounds and carryout raised from 6.7 mln bales to 7.2 million bales. Weather forecasts remain very friendly to cotton as condition ratings dropped 12 points last week and expected to drop more this week.