January USDA Report

It has been a long time since we had a report that had this much volatility around it. 3 minutes before the report, beans were up 20 cents and all of a sudden they dropped 30 cents. I was worried my clock was broken or the report was released early. When the report did come out corn quickly hit limit up and beans steadily gained momentum closing up 45 cents.

The biggest surprise was how much USDA dropped 2020 corn yield (3.8 bushels to 172). Soybean yield came down too but only 0.5 bushels (to 50.2). Corn stocks were also 320 million bushels lower than expectations which is a huge surprise. The stocks adjustment either means we used a record amount of corn or USDA is still catching up on adjustments from the 2019 crop which I think is more likely. Regardless of why, two years of crops are getting smaller all at once and in the face of increasing demand (China) and production issues in South America. All of this is also on top of the inflation fears and 0% interest rates causing a lot of institutional money to chase commodities. Going into this report, I thought this report could have limited negative impact because a lot of this rally has been driven by factors outside of the US (Chinese demand and South American weather) but you really never know with USDA. It is good to have it behind us now and not having to worry about some big shift up in stocks or any other negative surprises on the US balance sheet.

The market has to ration demand and try to figure out the South American crop size. It also has to encourage all acres. Nothing can afford to give up a ton of acres in the upcoming growing season. Global stocks are better than we were in 2007 to 2013, but we still cannot afford any hiccup in any growing area. Any sign of planting issues in the US this spring, will be met with significant upside to encourage acres.

My recommendations are the same as I have been for the last few weeks. You are not wrong to sell anything here. Corn is over $6 when we thought we would struggle to get $5. Beans are over $14 when we thought we were going to struggle to get $9. You are not wrong to sell. Cover some costs and debt. I do think there is upside so once you have covered your expenses, you can be patient. You can sell small when you scale in. Wheat did not get a bullish report but is a follower. I would be looking harder at hedging new crop wheat than I am corn and beans. I am being patient on new crop corn and beans.