There were no big surprises on this report. I think the biggest benefit of it was getting it behind us. USDA cut yield about as much as everyone was expecting. The market has been so strong of late, there was not enough on this report to change the direction. The bears say that US stocks are still at an adequate level even after the recent yield reductions and South America is going to make a big crop. The bulls say that yield estimates are going to continue to fall, China is going to continue to buy and South America has a long way before a crop is made. I do not think this report changed many people’s minds. Everyone left it with the same opinion they came in with.
Let’s recap what all has happened to this crop in the past month. We had a record bean and corn crop until: the derecho not only did not give any water but flattened a lot of acres, the furnace turned on and the Midwest saw the hottest temps of the year, last week the Dakotas saw some significant areas of frost. It is true what they say that the crop is not made until it’s in the bin. We were one rain way from much lower prices.
Corn
USDA dropped yield from 181.8 in Sept to 178.5 (Iowa was reduced by 5.4 bushels). You can see the drought hit an area bigger than the derecho as there were big drops in all the corn belt states. That is 378 million bushel drop of production taking carryout from 2.7 billion to 2.5 billion which is still an increase from last year (carryout didn’t drop as much as production due to reductions in demand). This has fallen a long way from early estimates of over 3 billion. We still have unknowns on demand as the ethanol number still looks a little high. However the biggest wild card now is China. At 2.7 to 3 billion bushel carryout we have a lot that we can export to China. Now that we have lost the buffer, it makes Chinese demand much more important. The longer South America stays dry into Sept, the less corn they will be able to plant after beans and the more China will have to buy from someone else, regardless of the political climate.
You need to continue to scale in sales. You do not need to sell your whole crop but there are good basis levels still in most markets so make plans for what you need to move. New crop corn cannot get much love but orders should be worked close to $4 in case we get a bounce.
Soybeans
Soybeans had by far the best reaction to the report and that is because there are not as many questions about soybean demand. Jan beans got above $10 and closed just below it. We had more export announcements this morning to China which has become a daily occurrence. I am sure there is a political motive to their actions but we will not make much progress trying to guess what it is. Instead let’s focus on what we know. South America is out of soybeans. The longer it stays dry, the later their crop will be planted and the more beans have to be bought somewhere else. China is going to buy beans. They are rebuilding their hog herds and trying to build back their grain strategic reserves.
USDA dropped US bean yield to 51.9 from 53.3 dropping production by 112 million bushels. They did not make many adjustments to demand and have carryout down to 460 million from 610 on the last report. They adjusted average farm price by almost $1 from $8.35 on the Aug report to 9.25 on this one. That is a huge move and a huge drop in carryout from 909 we had in 2018/2019. We do not have much of a buffer left in beans. South America weather is very important.
If you have not sold any beans yet, please get some sold! This market could continue to march higher, but it could also turn quickly and it will not sit at the top and wait for us to make up our mind. For everyone that has sales below where the market is it does not feel like it was the right thing to do, but you were managing risk. The thing to do now is to pull those prices up by hedging higher.
Wheat
Wheat did not get a boost today as USDA forecast growing world stocks. There are spots of weather trouble but the rain forecast for the plains has aided US winter wheat prospects. Part of the rally in wheat has been on rumors of Chinese buying but we have not seen confirmation of that. Without China, wheat does have some downside due to adequate stocks. As is the recurring theme this year, China is the wild card.
We need to be scaling in sales on new crop. Have some orders working between $5.50 and $6. With milling basis, $6 futures should be $6.50 wheat at harvest and over $7 in the fall.
Cotton
USDA dropped cotton yield from 938 pounds per acre to 910. This only dropped carryout by 400k bales. They left average farm price unchanged at 59 cents. Cotton needs overseas demand. The domestic supply may continue to come down, but 7+ million bales of US carryout is very burdensome.
