By Jon Scheve, Superior Feed Ingredients, LLC
Last week, the USDA decreased the expected national corn yield more than what the trade was expecting. There have only been 4 years in the last 15 when the estimated final yield was higher in the January report versus August. None of those years had weather conditions like what we have witnessed this year. Some in the trade still expect yield estimates to continue falling through harvest. However, even at current levels it is positive for prices longer term.
The USDA decreased feed and export demand to help offset the lower yield, but corn demand should remain strong through the next marketing year. This is because Brazil’s yield estimates were also decreased this month and the global wheat stock estimates were also scaled back.
The drop in Brazil’s yield means that corn exports that normally would come from the Southern Hemisphere may have to be shifted to the United States. With the tighter wheat stocks there should be a shift in feed rations back to corn from those that recently started to use wheat due to the low prices compared to corn. So, while the USDA did drop the feed demand this month, we could see this area of demand increase as we move forward in the marketing year.
With harvest approaching and the carry in the market being small, there is less incentive for farmers to pay commercial storage fees to store their corn. With cash prices currently above $5 for harvest delivery nearly everywhere in the county it seems likely that some farmers may sell some of their production at harvest. This could lead to a pullback in prices as we move into fall.
Overall, reduced corn yields and tight wheat stocks globally suggests prices in the long-term have upside potential. Obviously, something unforeseen like the African Swine Fever (ASF) sweeping through the U.S. or a major relapse of the disease in China could still hurt prices. And, of course, better than expected yields as we move into harvest could also put the brakes on a rally as well.
The August USDA report was mostly neutral for beans. The USDA lowered old crop export and crush demand. This wasn’t a huge surprise, because basis values and the futures inverse had been decreasing throughout the U.S. for weeks suggesting that demand had softened. Also, while expected yields decreased some, August weather could still have a big effect on bean production in either direction.
The new season for bean exports began this past week. From now through the end of winter the U.S. is about the only bean exporter in the world, which should keep a floor under prices. Longer term concerns in the bean market will be how big of an expansion there is in acres planted in South American this upcoming fall. Another issue that could develop over time would be if La Niña would return. Currently there is better than a 50% chance of this happening. That could create the potential for much drier weather in South America and significantly higher prices for corn and beans.
But like corn, harvest could also put pressure on prices through the end of October as many farmers may choose to sell beans while they are in the teens straight off the combine.
The market looks positive for corn and bean prices for the next 12 months. Higher wheat prices could mean more wheat acres planted at the expense of corn or beans next year which could lift prices for those crops as well. Some type of demand rationing, or supply spike may be needed to push prices down significantly.
Please email email@example.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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