The USDA increased the average corn yield estimate for the United States more than expected in the October supply and demand report. The average corn yield is now 171.8 bushels per acre, up nearly 2 bushels from the September estimate. This is forecast to give us a crop size of 14.28 billion bu and new crop ending stocks of 2.34 billion bu. Production would have been even larger if not for a 400,000 reduction to harvested acres.
The soybean data was much more friendly for the market. The USDA unexpectedly cut the average soybean yield by 4/10ths of a bushel to 49.5 bushels per acre, basically putting it back to the level that was projected in August. The soybean crop is still estimated at a record 4.43 billion bu though as harvested acres increased 400,000. New crop soybean carryout declined to 430 million bu from last month’s 475 million bu though as carryin from old crop was factored into the balance sheets.
The USDA increased wheat carryout from 933 million bu to 960 million bu as feed remand is expected to decrease given the abundance of corn in the United States.
Low water levels on the US river system have caused disruptions to barge movement, and in turn, affected grain and soybean flow. This is mainly in regions where soybean harvest has been actively taking place and facilities are full of new crop inventory. Typically an elevator takes in large volumes of soybeans, ships them out, then takes in new crop corn. Given the delays to soybean shipments, many terminals may not be able to take timely delivery of corn.
These logistic issues have spilled over into the export market. The most concern is coming from China, where there are already reports of soybean buying interest shifting back to South America. Concerns over the quality of new crop soybeans in the Delta are adding reason to why China is shifting its buying interest.
Although early, we are already seeing the new crop acreage debate increase. This is mainly from the price ratio and how it greatly favors the production of soybeans over corn. At the present time this spread favors the production of soybeans by roughly $75.00 per acre in most cases. One difference between this year and many similar ones in history is that lenders are reportedly having more of a say in borrowing needs for specific crops.
Much of the talk in the market surrounding acreage shifting is centering on the affect it would have on production and stocks. If the soy complex would gain 1 million acres and demand holds steady, the United States would only need a national average yield of 47 bushels per acre next year to satisfy demand. Any increase to potential acres this year and that yield declines even further.
At the same time, a 1 million loss of corn acres would require a 167 bushel per acre US yield next year to keep ending stocks above 2 billion bu. An acreage loss of 3 million acres and the yield needed increases to 172 bushels per acre to maintain the same corn reserve.
New crop sales of both corn and soybeans remain light. One of the primary reasons for this is that producers across the United States want to see yield potential before extending sales. Another is that the same producers are hoping we see a post-harvest market rally. This slow movement is being reflected in commercial selling interest as well, with sales out of those facilities record low.
This lack of selling interest by all entities has supported basis values, even with record large stocks being reported.
World soybean demand continues to expand at a rather rapid rate. Global soybean demand has increased an average of 500 million bu per year over the past nine years. By comparison, this is nearly equal to the volume of soybeans produced in Iowa. While this is positive news for the soy complex, the ability for South America to meet these needs is tempering market reaction.
The Farm Service Agency has announced they will not be considering any new acres for the Conservation Reserve Program until later in 2018. The primary reason for this is that there are currently 23.5 million acres in CRP and 24 million is the cap. There is speculation that the FSA may want to reconsider regulations and guidelines for enrollment, however. The main one of these is what acres qualify to be in the reserve program.
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.
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page