Prices respond to October Crop Report

On Oct.12, USDA’s National Agricultural Statistics Service forecast corn production at 12.4 billion bushels, down 1% from the September forecast and down slightly from the 2010 production estimate in the Crop Report.

If realized, this will be the fourth largest production total on record for the United States. Based on conditions as of Oct. 1, yields are expected to average 148.1 bushels per acre, unchanged from the September forecast but down 4.7 bushels from 2010. If realized, this will be the lowest average yield since 2005. Area harvested for grain is forecast at 83.9 million acres, down 1% from the September forecast. Acreage updates were made in several states based on administrative data.

“The October 12 crop report yielded few surprises, ending for a short time speculation about the size of the U.S. corn and soybean crops. In recent days the trade has been lowering their ideas of the U.S. corn crop. Numerous reports in past weeks of better than expected corn yields raised some ideas that the corn yield could be at least 150 bushels per acre with the October report,” said Doug Tenney, with Leist Mercantile in Circleville. “The lowering ideas picked up steam last Thursday when industry watched, much respected Informa released their corn yield estimate of 149.5 bushels per acre. The 150 bushels per acre number or above seemed to be a tipping point for lower prices to come.”

Soybean production is forecast at 3.06 billion bushels, down 1% from September and down 8% from last year. Based on Oct. 1 conditions, yields are expected to average 41.5 bushels per acre, down 0.3 bushel from last month and down 2 bushels from last year. If realized, the average yield will be the second lowest since 2003. Area for harvest is forecast at 73.7 million acres, down slightly from September and down 4% from 2010.

“Much of the trade was looking for both corn and soybeans yields to go up with this report,” Tenney said. “For weeks we have been seeing ideas of corn and soybean acres being reduced due to wet spring planting weather. USDA lowered the corn acres 400,000 acres while the soybean acres were unchanged.”

Prior to the report, exports had been a major force behind price declines.

“Soybean exports went down 40 million bushels. This was not a major surprise as Brazil has been grabbing exports that normally would be coming out of the U.S. at this time of year with harvest underway. Last week we did see two days of U.S. soybean sales to China,” Tenney said. “China in recent months has slacked off their frantic buying pace last year for U.S. soybeans. They have been buying Brazil soybeans more than people had expected. They continue to have interest in buying both corn and soybeans to add to their government reserves. In recent days, China has been nosing around to buy several million tons of corn from Argentina. Nothing has yet been announced.”

Prices have responded accordingly.

“Tuesday was a huge up day for grain prices with corn up the 40 cent limit, soybeans were up 58 cents. The trading limit for corn today on Wednesday moves to 60 cents. Assuming no limit move on Wednesday, the corn daily limit moves back to 40 cents,” Tenney said. “Early calls in the first hour after the report release has corn 2-5 cents lower, soybeans up 5-7 cents, wheat down 10 cents. Trading on Tuesday had corn open interest down 15,000 contracts, soybean open interest is down 4,000 contracts. This would indicate shorts were buying their way out of the market on Tuesday. Typically the lower open interest would not be a sign of continued strength. It will take new demand and or lower yields to push December corn back above $7 and soybeans above $13. New contract highs are not likely if these events don’t take place.”

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