November USDA Report

Everyone in the market was looking for another bullish report, and USDA did not disappoint. Corn carryout has been cut in half in less than six months and bean carryout is now projected to be the lowest since 2013/2014. Wheat and cotton did not get much help in this report but wheat traded higher in sympathy with the grains and cotton finished the session unchanged.

Watching the market trade after this report, one thing that jumps off the page at me is how much the back months are catching up now. In the beginning of this rally, the new crop contracts in corn and beans were not able to gather much momentum. That is starting to change now as the balance sheet is being tightened up enough that the US acreage is going to be very important. In the last few years, stocks have been adequate so there has not been a real acreage fight. When this rally started, it was just because a storm knocked down some corn in the midwest but we were still going to have a good crop. Then it did not rain again and we lost more of the US crop. Then China started buying but that was ok because we had plenty still and South America was going to make a big crop. Then South America stayed dry and their crop was delayed getting in the ground. China kept buying more and more of the US crops. Then at the end of September, USDA realized that the 2019 crop was much smaller than they had been projecting and China kept buying. Today USDA reduced the size of 2020 crop and increased how much China is projected to import. Each update we get increases demand and decreases supply. That is how we have gotten to a place where new crop (2021) acres mean much more than they did not that long ago. It has been a series of dominos and for the first time in a long time, they have all been falling in our favor.

Just this summer, there were many estimates of corn carryout over 3 billion bushels. This report, USDA projected 1.7 billion bushel carryout. 2 billion is an inflection point for carryout. Above 2 billion is more than comfortable and below that level starts to require rationing. Many analysts believe the yield will need to come down even further than the 175.8 USDA gave us today and Chinese demand needs to be adjusted higher. 3 out of 4 years that USDA has adjusted yield lower on the Sept, Oct, and Nov report they have continued reducing the yield in subsequent reports. South America becomes even more critical as do US acres. The US and world balance sheets have changed dramatically in the last 6 months.

I think there will be more excitement on new crop corn, but I still recommend everyone get started on a little new crop at $4 on the board. Basis will be very strong for our harvest as old crop will be extremely tight. $4 hedge should be $5+ cash delivered. Keep scaling in small lots at a time on old crop as well. You can do very small amounts, but keep rewarding the rally. We hope there is still a lot of upside, but the tide can turn the other way just as quickly. Basis has backed off in the Midwest, but is still extremely strong in the Southeast. Do not sell posted bids!

Carryout on beans went from 523 million bushels to 190 million projected this year. This gets us close to pipeline supplies and makes South American weather more and more critical by the day. The export pace has been phenomenal and basis is at record levels in many markets. Much like corn, when the rally started it was just trying to get beans to come to market now. That is why the nearby contracts were going up higher than the later ones. Now the market is starting to need to ration some demand as well as spread out the available supply. That is why there are carries building back in the market and also why the new crop contracts are starting to come alive too. The market is trying to ration demand and encourage more production.

New crop beans are above $10 now finally. Scale in some small sales and have orders working around $10.50 as well. Continue scaling in old crop small lots at a time. Do not sell posted bids!!

The Russian crop is getting a little bigger but wheat is a follower again. The fundamental story in wheat has now taken a backseat as it is more comfortable than the other grains right now. Production issues have mitigated but the funds continue to buy wheat.

Scale in new crop sales above $6!

USDA made very little adjustment to cotton and cotton has been facing some harvest pressure. The stock market rally this week has provided a little tailwind to cotton. Scale in sales above $0.70 on cotton.