The November report is usually not a very exciting one but it is typically the last adjustments USDA makes on yield until the “final” estimate in January.
Beans have sold off hard in the last week in anticipation of a bigger yield in both the US and in South America. The one thing I was hoping for on this report was that USDA would not raise yield as much as the market had priced in so we could stop the bleeding in beans. I did not think it was even in the realm of possibility to get a lower yield and obviously the market was thinking the same way but that is what USDA did. They lowered yield 0.3 of a bushel on soybeans from the Oct estimate. They also did lower exports as we have not been exporting near as much as we typically do this time of year. The absence of Chinese purchases over the last few weeks is one of the big things weighing on the market. USDA did not increase domestic crush as many had also expected. The market believes there is still time to do that in later reports. USDA also lowered world carryout below market expectations.
This was a bullish report compared to expectations, but it is hard to be too bullish soybeans long term when just looking at the fundamentals. South America is off to a good start and there is some dryness in Argentina but Brazil has gotten the crop planted very quickly in good moisture. China is not buying from us right now. Even if yield does not change any, we went from a 135 million bushel carryout last year to an estimated 340 million bushel carryout this year. That is a significant building of stocks from last year to this year and that is why there has been so much weakness in beans. Not all is negative on beans, there is very robust demand, edible oils are near all time highs and there is inflation pressure on all commodities as dollars look for returns. We just do not have as much of a tailwind as we had this summer. We could still get a weather problem in South America. China could start buying more beans. All is not lost but we need to adjust our expectations.
We need to be looking to scale in more sales in the mid $12. Hopefully we have printed the lows now for soybeans. We also need to be scaling in sales for next year’s beans when we price some for this year. Beans are poised to pick up acres in the Midwest but probably not in the Midsouth where they compete with cotton.
The report was very neutral for corn. USDA raised yield, but not as much as the market had expected. Even with the higher yield, carryout was down from the Oct report. The market expects there is still room for estimates to go higher on demand for ethanol. Corn is trading most like an energy right now and energies continue to rally. Corn needs to make sure it does not lose too many acres next year with inputs so much higher. Corn has a brighter picture right now than beans in my opinion.
Work orders close to $6 on corn still and be more patient on new crop. Trains are offered cheap but are not performing very well in some areas. I would be targeting train delays to move additional bushels and can be patient for them for now.
Very few changes on the wheat on this report. The wheat story is still focusing mostly on Northern Hemisphere yields and Russian export taxes. We will get an updated estimate of acres at the end of the year. There have been lots of mainstream media articles about wheat tightness and its relationship to food inflation. I expect those to continue and the countries that have to import are getting increasingly nervous. Chicago wheat has hit $8 but has been unable to hold that level.
If you are going to grow wheat, get some on the books for next year. There is a lot planted in Western North Carolina and there is still decent harvest bids so if you have to move some at harvest, get some basis on now. If you do not need to move at harvest, hedge it.
USDA report looked bearish to me but yet the old crop closed up 283 ticks and new crop up 47. There is obviously something else driving cotton right now. It seems to have started around the same time the news of the Evergrande default came to light. To an operation set up to do it, cotton looks to the most attractive crop right now. If you are increasing your acreage make sure you get some protected.