USDA: More grain, but not demand
It didn’t take long for market analysts reading the Aug. 12 Supply and Demand report from the U.S. Department of Agriculture to respond by flooding the futures market with sell orders, especially by commercial traders who over-bought the commodities in anticipation of a weather market.
It took just 15 minutes after markets opened that day for both corn and soybeans to hit limit down levels – $3.57 December corn and $9.01 November soybeans.
Although the futures drop did not stay that low, it was a wake-up call to analysts that USDA claims there is more corn and soybeans in the larder and even more new crop to arrive, without any appreciable anticipation that demand will improve to consume this wealth of grain.
At the end of the week, December corn had lost 8.5 cents for the week.
The slide was reflected in local trading as well.
On Aug. 11, August corn closed at $3.76 and a day later at $3.57, a 19-cent drop. In local cash sales at NEW Cooperative in Fort Dodge, the last bid on Aug. 11 was $3.44 and 24-hours later closed at $3.25, 19 cents lower.
According to Darin Newsom, senior market anayst, USDA’s ultra-bearish report held plenty of surprises.
“Most in the trade were looking for decreases,” Newsom said, “but what we saw was the opposite.”
A whole bunch of opposite, actually.
Newsom said USDA’s increase to national yields was due to stabilization of crop condition ratings in both commodities from June to August.
“I’m not convinced it means 2 bushels per acre,” Newsom said, “but time will tell.”
Newsom said this report may cause long-term damage in the market.
“We’re moving to new lows right now,” he said. “As the commercials sell, price drops.”
He said he anticipates there will be some buy-ins at the new low, but the fact there is a new low, he offered no encouragement for a quick price recovery.
In July, USDA predicted a national average corn yield of 166 bushels per acre, but it raised that estimate to 168 bpa on Aug. 12.
“We were expecting a drop of 2 bushels from July,” Newsom said.
If USDA is correct, Newsom said, from an estimated 88.9 million acres to be harvested, that extra 2 bushels will see a total of 13.6 billion bushels, which is up from 13.5 bb from the July forecast. Another billion bushels of corn may be difficult get sold ahead of the 2016 harvest.
“If this is true,” Newsom said, “we’ll be just below last year’s record crop.”
After weather events that indicate significantly lower yields in Indiana and Ohio and parts of Illinois, market analysts were expecting a drop in the new crop expectations.
The initial knee-jerk in the markets was created by the forecasted ending stocks for August 2016. Where USDA estimated a carryover of 1.59 bb in July, the numbers increased the carryover to 1.7 bb, a 12.9 percent stocks-to-use ratio, up from 12.4 percent in July.
It’s a bearish amount, Newsom said.
A similar scenario was reported in soybeans, with USDA forecasting in July the national average bean yield at 46 bpa, then raising it to 46.9 bpa in August.
Even found USDA found fewer acres to be harvested in August (84.3 million( than in July (85.1 million), Newsom said the increased average yield offset the fewer acres.
If USDA is correct, he said, the national soybean harvest will result in 3.91 bb of new crop, up from 3.88 bb in July.
With 2015-2016 demand staying relatively parallel to 2014-2015, soybeans’ ending stock in August 2016 is now lifted to 470 million bushels, up from July’s estimate of 425 mb.
That’s a stocks-to-use ratio of 12.6 percent.
“That’s a ridiculously high number,” Newsom said. “What we’re seeing now, we’re not that far away from last year’s 3.96 bb harvest
“Sell orders flooded the market after the report was released.”