November USDA Report

The USDA made very few changes on the November Supply and Demand Report released today at 12. This report has been a big question mark hanging over the market and I am glad to have it behind us. USDA did not give us a big bullish boost, but they also did not kick us in the shins again so I am trying to be grateful for that. First we can cross wheat off. They changed very little about wheat and there was no real reaction in wheat to the report.

In corn, USDA dropped yield 1.4 bushels but did not adjust acres at all. They also reduced demand (ethanol and exports) enough to almost completely offset the drop in production. By not adjusting acres on corn (and beans), I think USDA has undermined the credibility of this report a bit and made it clear they are kicking the can down the road. We all saw the mid-Oct snowstorm and all agree there will have to be some adjustment because of it. USDA was making large adjustments to 2018 crop all the way until Sept 2019 and we had a relatively smooth harvest last year. This year, there is a lot of acres that will not be harvested until Spring. It will take a long time to have any confidence in the size of this crop. We can all agree it will be getting smaller, the question is whether demand will continue to shrink as fast as supply. That is why the market has been drifting lower, because the demand destruction is very real and measurable as we see small exports and ethanol plants shutting down. The supply adjustments are slow coming. It is looking likely we will continue to see low volume drifting trade through the end of the year. The funds continue to grow their short positions so if something can/does spook them, we can see a quick rally.

Soybeans were looking for a cut to both acres and yield and got neither. Much like corn after seeing the snowstorm in the western belt, I think the lack of acreage adjustment undermines this report. I think the weakness came as much from comments from Trump as it did from USDA. Today, Trump disputed Chinese reports of an agreement by the US to drop tariffs as part of the “Phase 1” deal. Until today, the updates have been sparse but rhetoric has been positive from both sides. Today’s comment seeming to escalate the rhetoric is not friendly. Exports have been strong leading everyone to believe we were making progress. We need to see continued progress to keep support in the beans. We are also now watching South America weather very closely. The weather pattern did not start off great, but seems to have turned slightly better. The market will be watching to see if that trend continues.

Basis in the Southeast has actually moved higher in most markets which is a counter seasonal move. Generally our basis does not improve until Jan/Feb or later. This reflects better export markets and the dramatic drop in estimated carryouts. Only a few months ago we were projecting a record billion plus bushel carryout that has now been trimmed to under half of that (even with no changes from USDA on production). Everyone has agreed that production will come down, the question is how much.

Cotton got the most bullish treatment today from USDA as yield was cut from 833 to 799 lbs/acre. That drops domestic carryout from 7 million bales to 6.10. USDA also dropped world carryout significantly. Much like soybeans, cotton needs more positive rhetoric on trade. We need “phase 1” confirmed by both sides and see the details.