August USDA Report

One year ago from this report is when the rally started. On the September supply and demand report, USDA lowered the corn yield more than expected due to the derecho and continued to reduce it in each report all the way until Jan. USDA came under a lot of heat for failing to react quickly enough to changing conditions. Today, USDA dropped yield more than expected. The question now is whether this is USDA trying to be more proactive and giving us a clearer picture of what the crop actually is or is the crop hurt so bad that this first yield adjustment is just the tip of the iceberg. Midwest crop tours start next week and the market will be watching very closely to see what they find for more information about the crop size. The weather is less important now for corn but still crucial for bean fill so soybeans will be watching the weather more closely than will corn.

USDA dropped corn yield from the trend yield we have been using on the balance sheet of 179.5 to 174.6 which is 2 bushels below the market expectation. This brings US carryout down to 1.242 billion from the July estimate of 1.432. World carryout came down significantly as well as USDA dropped Brazilian production following CONABs revised estimates this week. Corn is going to continue to be tight both domestically and world wide. USDA arrives at a 1.242 bln bushel carryout with demand estimates that many believe are way too conservative. Lots of analysts are looking for higher ethanol grind, domestic usage and exports with a more realistic estimate of carryout right at 1 billion. USDA has also been criticized for being way too conservitive on demand estimates and within their balance sheet they show less exports than last year even with Canadian crops completely burned up so less small grains available, Ukraine facing too much heat and drought, record heat in China’s corn producing regions and a disaster in the Brazilian corn crop. That is just looking at exports, domestic usage and ethanol seem to have similar issues.

I am bullish corn here but harvest is on us now. My feeling here is skepticism in USDA’s number which may still be optimistic on yield and too low on demand. We need to be making sure we have space allocated or basis sold as basis is going to get cheaper in our markets during harvest. If you have not made any sales in a while, this is a great opportunity to get some more corn sold. If you need to move corn at harvest, GET SOME BASIS LOCKED IN!

USDA also dropped soybean yield but not as much as corn. Trendline was estimated at 50.8 bushels per acre and USDA estimated yield at 50.0. This was below expectations but USDA was creative to keep carryout from getting any lower. They increased carry-in and decreased domestic crush and exports to keep carryout at the same 155 mln bushels. Soybeans could not hold the gains as the weather models were adding some moisture into the runs today. We have had a sale to China (or unknown assumed to be China) flash across USDA reporting system for six days in a row now. Whatever yield we are adding late in the season will probably be taken by China.

Overall this report was not nearly as friendly for beans as it was for corn. Not surprised to see beans lag at the close. Weather is still crucial for bean yield here. I think we can be patient on beans to get back closer to $14.

Wheat carryout dropped significantly on the world balance sheet and domestically. Interestingly, USDA sees a world of dwindling wheat stocks but leaves US exports unchanged. Europe’s crop was hit hard by floods. Russia’s crop is now shrinking due to heat. Wheat seems to be losing supply all over the world right now. Wheat looks to still have a lot of upside but its not what we see coming that will turn the tide, it is what we do not see.

With new crop well over $7, get started with some hedges if you are planning on planting some wheat. New crop cash bids are also strong into the flour mills so if you are close to one of the flour mills, I would not be opposed to some cash sales but for most people a hedge is a much better option.

Cotton was also a big surprise with USDA actually raising exports and also lowering yield. We saw great exports on this morning’s weekly report as well as on the monthly supply and demand. The tropical storm path going up through Georgia is also adding to the bullish sentiment. Be scaling in sales on cotton.