August USDA Report

USDA raised yield to 181.8 from the trendline estimate of 178.5 they have been using on the balance sheet. This was the first revision to yield they have made. It was not as high as some analysts were expecting but above the average guess. USDA included a note saying the damage from the Iowa storms was not included in this yield estimate. That gives an extra measure of uncertainty to final yield which I think helped the market absorb this huge carryout estimate. As we wind the growing season down, there is less uncertainty in production which is why the market typically drifts lower in a good crop year during this time. The Iowa windstorm has helped add uncertainty back into the equation which is providing support. It may help keep the harvest low from being as low as it would have been. The ProFarmer tour over the next couple weeks will help gauge the scope of the damage. The storm has given us some support but I find it very unlikely to move the needle enough to push the market back up very much. The crop is just too big and we have too much uncertainty in demand.

I think we may be close to our harvest lows, but do not have confidence we have reached them yet. I hope that I am wrong. If you need to price cash corn at harvest, you should be pricing on this bounce! You can re-own at the harvest lows cheaper than holding everything unpriced. USDA confirmed today that there is a big crop coming. A rally on a bearish report is a gift. I am not ready to call it a change in trend. We need even more Chinese buying and domestic demand recovery before it can turn the trend. There are early basis opportunities still in some markets. Let us know when you start harvesting!

The report on its surface looked more bearish than corn. USDA projected a huge increase in yield and carryout even with record demand. I think the bulls found support in a few places today. After the recent Chinese purchases, USDA raised Chinese imports by 5 million metric tons reflecting increasing world demand as China tries to rebuild their pork herds. Weather is trending a little drier in the long term forecasts and August weather matters on bean yields in the Midwest (much more than on corn yields). Seasonally, beans often put their low in mid Aug and the seasonals turn higher for a while.

Beans remain much higher from the lows than corn does, but I think there is more downside risk in beans now given the big yields. Even with the huge demand we have seen we are still facing the 3rd highest stocks to use ratio since 07. On the world balance sheets, we are still projecting a contraction and China is working hard to build back stocks, but we (the US) have a lot of things to overcome. We are struggling to remain profitable while South America sells crops for record high prices due to their currency which encourages more production down there at the same time it is discouraging production for us. With the prospects of a good crop becoming more and more likely every day, all these factors have now limited the upside potential in the near term and opened up more downside risk.

We need to be working more bean sales between here and $9. World fundamentals still look better than corn right now, but there looks to be more downside risk in beans if we finish the crop strong here and get a big crop planted in South America.

No big surprises in wheat but just the same negative news from around the world that we have been dealing with for the last few weeks. Better weather patterns in Australia, Canada and better yields in Russia have all added downward pressure to wheat.

Old crop sales need to be made on moves above $5. On new crop we can be patient until $5.50.

Cotton was probably the biggest surprise. USDA raised yield which was a shock, but they did so due to abandonment. So the failed acres were taken out of the equation which is what raised the yield. However abandonment did not go up enough to completely offset the yield increase. Cotton has a lot of supply coming and unknown demand. However we are still below support prices. Cotton will continue to follow the stock market, but will have more weight on the Chinese equities than the US.

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