August WASDE report bearish, watch the close

Today’s report is a bearish report. Both corn and soybean production and yields were above trade expectations and near the high end of estimates. Corn production was estimated at 15.153 billion bushels with a yield of 175.1 bushels per acre. Ending stocks were estimated at 2.409 billion bushels. The US soybean production was estimated at 4.060 billion bushels with a yield at 48.9 bushels per acre.

Old crop US corn exports were increased 25 million bushels while new crop corn exports jumped to 2.175 billion bushels, up 125 million bushels from last month. Old crop soybean US exports were up 85 million bushels with new crop exports were up 30 million bushels. The strong demand increases account for keeping soybeans from being down 30 cents or more. The ending stocks of 330 million bushels will keep the bears feeling good for the day. Again watch to see what where grains close.

The USDA report today is a monthly supply and demand report. Traders are heavily focused on corn and soybean production in the US. For US corn and soybeans they will be watching both total production and yield.  Those numbers are easy to focus on with US corn and soybeans the main talk of the town as the growing season wraps up in a few weeks. This USDA report is the first report using actual field samples of corn and soybeans to aid in determining production and yield estimates.

It appears the trade is heavily focused on the supply side of today’s report. Production and yield are easy to talk about. Everyone has an opinion. Discussion on demand has been largely absent ahead of this report. Demand continues to be strong for both soybeans and corn from the US. On Tuesday US soybeans had their 10th day in a row of old and/or new crop soybean sales to either China or unknown destinations.

The market has been consolidating and trading in narrow price ranges for corn and soybeans the past two weeks. Any kind of surprise could yield a spike of 10-15 cents for corn and 20-50 cents for soybeans within a few minutes.

Prior to the report corn was down 3 cents, soybeans down 9 cents, and wheat was down 2 cents. Near the 12:30 pm time frame, corn was down 7 cents, soybeans down 12 cents, and wheat down 8 cents.

The previous estimates for new crop corn and soybeans began with the May report as USDA used trend line yields of 168 bushels per acre for corn and 46.7 bushels per acre for soybean for each of the May, June, and July reports. The July report did feature a small revision for corn and soybean acres using the June 30 acres report.

Grain prices have been in a downward spiral since June 14. On that day December CBOT corn closed at $4.48 ¾. Last night it closed at $3.31 ¾. That same day November CBOT soybeans closed at $11.48 ¼, while last night they closed at $9.84. Frequent rains across much of the Midwest improved yield prospects from earlier indications. Bear in mind that not all areas received those rains since mid-June. The “I” states of Iowa, Illinois, and Indiana received those rains. Ohio did not.

Don’t be surprised to hear drought stricken corn harvested in Ohio in the next two to three weeks. Corn on gravel ground in Circleville is done, the growing season shortened by both heat and a lack of rain in July. Northwest Ohio has also suffered from a lack of moisture as well as other areas of Ohio, particularly north of I-70.

Prior to the report traders had estimated the US corn yield at 170.6 bushels per acre and total production at 14.757 billion bushels. The July estimates from USDA had US corn production at 14.540 billion bushels with a US yield of 168 bushels per acre. Trade estimates for soybeans were 3.941 billion bushels with a US yield of 47.5 bushels per acre. Last month USDA estimated soybean production at 3.880 billion bushels and a yield of 46.7 bushels per acre.

Pointing to strong demand, we pick up additional sales again on Thursday with sales of 120,000 tons of new crop soybeans to China. Also today there were sales of 258,000 tons of new crop soybeans to China. Some are also suggesting that the old crop soybean export number could easily increase with this report. New crop soybean sales this week of 102 million bushels were the highest since 2003. They were also the second highest weekly number in history. While not impossible, it would be another strong indication of soybean demand to see old crop exports increase at this date. Keep in mind there is less than three weeks to go for the old crop marketing year that ends on August  31, 2016.

Weather forecasts earlier today indicate central Illinois, Indiana, and Ohio could receive 3-5 inches of rain in the next five days. It would easily be welcomed to finish and potentially improve soybean yields. Rains will not bring back lost corn yields at this late date.

Soybeans were especially volatile in the first five minutes following the report. They ranged from down 3 cents, then down 18 cents, then 12 cents, then hit 14 cents lower. This all happened within the first two minutes after the report release.

We now know what USDA is thinking. The numbers are out. You can argue with the numbers or realize the USDA is over for this month. It will be most interesting to see where grains close. If November CBOT soybeans close below $9.65, they could challenge the $9.43 low early this month. Should December CBOT corn close below $3.25 they could challenge the $3.18 low made in October 2014.

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