As expected, the USDA lowered the U.S. corn yield by 1 bushel per acre in the October supply and demand report, putting the national average at 173.4 bushels per acre.
Even with an increase to harvested acres of 200,000, this was enough to reduce total production by 36 million bushels.
The only change to usage was a 50 mb increase to exports, which will leave the U.S. with a comfortable 2.32 billion bushels of ending stocks. Global corn reserves decreased by 2.6 million metric tons, but still stands at a large 216.8 mmt.
As with corn, the increase to soybean yield in the monthly balance sheets was fully expected. The USDA is now projecting a national average yield of 51.4 bushels per acre compared to 50.6 bushels per acre in September. It surprisingly lowered the harvested acres on soybeans by 40,000, when an increase was anticipated.
The combination of all of these factors was a 4.27 bb crop and a 395 mb carryout, both slightly higher than the numbers released last month.
Global soybean reserves jumped from 72.17 mmt to 77.36 mmt which was more negative for the complex than the domestic data was.
Now that the monthly balance sheets have been released, attention will revert to harvest yields. Harvest was slow to start this year but has progressed in recent weeks. As it has we have received more accurate yield reports than what was used to project the crop estimates that were just released.
This will put even more emphasis on the November numbers than we usually see.
There are signs USDA is over-optimistic on soybean demand. The U.S. market is close to maxed out on its ability to not only process soybeans, but to export products as well. The situation is not the same in China, where crush is only running at 60 percent of capacity. It also does not appear as though USDA is accounting for the volume of alternative protein feed grains being consumed, mainly distiller grains.
One of the most interesting numbers in global balance sheets may be Brazilian corn production, where farmers are expected to plant additional corn acres this year, which will allow them to expand exports by nearly 9 mmt.
Argentine farmers are expected to do the same, although their exports are only forecast to rise half as much. This will undoubtedly increase competition for the United States in the global corn market.
One advantage U.S. corn has over South America is price. A buyer can currently source corn from the United States at a sizable discount to South America as well as several other sources. One that is competing with the U.S. is Ukraine though, where corn supplies appear to be larger than first thought.
The United States is also seeing a large amount of competition from cheaper feed wheat, which is also abundant in the global market at the present time.
Even though harvest is still taking place, we are starting to see more interest in what will happen with next year’s production. There are thoughts soybean values will need to rally to sway acres away from corn production. The simple fact that corn futures have remained stagnant while soybeans firmed in recent weeks will accomplish the same result.
The general opinion is we will see a 4 percent decrease in corn acres and a 5 percent increase to soybean plantings next year.
If correct this would give us 90.3 million acre on corn and 87.9 million on soybeans. This is still plenty of corn acres given carryout expectations, and enough additional soybean acres to help build or at least maintain ending stocks on that commodity.
There is a lot of talk in today’s market surrounding crop quality and why it has not supported the market. Thoughts that this will lower yields is the primary reason some believe this is a supportive issue. This is not necessarily true, and in many cases, low quality can lower the value of a crop as it lessens demand. Any benefit from poor quality crops comes to those without issues, and tends to be more on a localized level than nationwide.
Analysts are already looking forward to the end of harvest and what it may mean for commodity values, especially in the cash market. There are indications producers will sell anything that comes to town and hold their remaining bushels in on-farm storage. This is similar to what took place last year. As a result, buyers are not widening basis as much as thought as they know bushels may be hard to secure once harvest is complete.
Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.
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