Last Friday, the U.S. Department of Agriculture released the October supply/demand report. The USDA estimated corn production at 13.018 billion bushels, up slightly from last month and 8 percent higher than 2008.
Based on conditions as of Oct. 1, yields are expected to average 164.2 bushels per acre, up 2.3 bushels from September and 10.3 bushels above last year. If realized, this yield will be the highest on record and total production will be second only to the record set in 2007. Yield forecasts remained unchanged or increased from last month across the Corn Belt, Great Plains and Ohio Valley where warm, dry weather during much of September helped push the late-developing corn crop towards maturity.
Light frost was reported in parts of the northern tier of the Great Plains and Corn Belt in late September. However, temperatures were not considered low enough to terminate crop growth. Based on administrative information, acreage updates were made in several states and farmers now expect to harvest 79.3 million acres for grain, down 1 percent from the September forecast, but 1 percent above 2008.
The sharp jump in the U.S. average corn yield clearly has negative implications as the market likely will be anticipating further increases in future reports. However, the yield increase came at the hands of an unexpected reduction in the planted area, allowing the actual crop size to not increase much from last month.
This allowed 2009/10 U.S. corn ending stocks to remain essentially unchanged, as well. From that perspective, despite the higher yield, there really was not a structural change to the U.S. balance sheet.
A yield increase in October, following a September increase tends to result in further increases and has essentially guaranteed a yield no lower than the September estimate, which was 161.9 bushels/acre. When USDA raised yields in September and October, in both 2004 and 2005, the final yield proved higher than the October estimate.
Soybeans up slightly
Soybean production was forecast at a record high 3.25 billion bushels, up slightly from the September forecast and up 10 percent from last year. Based on Oct. 1 conditions, yields are expected to average 42.4 bushels per acre, up 0.1 bushel from last month and up 2.7 bushels from 2008.
If realized, this will be the third highest yield on record. Compared with last month, yields are forecast higher or unchanged in all states except Michigan,
Mississippi, Ohio, and New York.
The largest decrease in yield from the September forecast is expected in Mississippi, where persistent rain during the last two weeks of the month increased the potential impact of disease. Increases of two bushels are expected in Kentucky, Louisiana, Oklahoma and Virginia. If realized, the forecasted yield in Alabama, Georgia, and Nebraska will be a record high and the forecasted yield in Arkansas,
Kentucky, North Carolina and Pennsylvania will tie the previous record high.
Area for harvest in the U.S. is forecast at 76.6 million acres, down slightly from the previous estimate but up 3 percent from 2008.
The most notable supply-side impact on soybeans came from the known 28 million bushel increase in beginning stocks, but was almost completely offset by a 25 million bushel increase in exports, resulting in 2009/10 U.S. soybean ending stocks moving up just 10 million bushels to 230 million.
Even though the U.S. average yield moved up just 0.1 bushel/acre this month to 42.4, the historical implications following an increase in September and October clearly point to the potential for further yield increases down the road.
As seen, years with yield increases predicted in each of these months tend to be accurate.
Corn closed the week $.28 3/4 higher. So far, this year’s sales are outpacing last year’s figures, 632 mb versus 570 mb. The US needs to export 32.7 mb each week to reach the USDA forecast. The USDA estimated the U.S. corn harvest is now 10 percent complete versus 6 percent last week, 13 percent last year and 25 percent average. The lack of corn harvest has kept traditional harvest pressure away from the market.
Elevators and ethanol plants are reportedly bidding up for cash supplies as they had counted on newly harvested corn supplies that are being delayed due to the weather. Eventually, harvest pressure will begin to hit the market with pressure prices.
Soybeans closed the week $.79 higher. This year’s export forecast is far outpacing last year’s sales profile, 758 mb versus 406 mb. The U.S. only needs to export 10.9 mb each week to reach the USDA forecast. The USDA reported U.S. soybean harvest is now 15 percent complete versus 5 percent last week, 28 percent last year and 36 percent average.
We are hearing a lot of harvest reports from the Southern U.S. where yields are excellent with most fields between 65 to 75 bushels per acre. Yields are also excellent in the Eastern Corn Belt with yields in Indiana and Illinois between 55 bpa and 75 bpa. Yields in the Western Corn Belt are also very good, but more variable at 45 bpa to 65 bpa.
The soybean harvest has been slowed by recent rainfall, which has allowed soybeans to rally as there hasn’t been any harvest pressure to limit the upside.
Once weather improves, soybeans look to fall under the pressure of harvesting a record large crop.
Strategy, outlook: Producers should be hedged in new crop soybeans when November soybeans reached the long held target of $10.25 to $10.75. Producers should have used a combination of cash sales, hedges and put options to effectively manage risk. If the new crop November contract falls to $8.85, producers should liquidate their put options.
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