By Jon Scheve, Superior Feed Ingredients, LLC
Following are the highlights of last week’s USDA report that provided more information on the U.S. grain supply.
While the USDA decreased the average national yield, most of the country’s best corn areas still need to be harvested. Right now, it is uncertain if yields in the east that have not been harvested will make up for the disappointing yields in the west that have been picked.
Considering the value of U.S. corn compared to the rest of the world, it seems reasonable that the USDA decreased export demand. However, their feed estimate is almost 7% lower than the last 4-year average, which may be too low. While the trade still believes exports could decrease a few more bushels, the feed category may have room to offset further export reductions.
The chart below shows current USDA estimates with several different demand scenarios (highlighted in blue) and a range of potential outcomes to the carryout.
Based on the different demand scenarios, the stocks to use ratios could be range bound between last year’s levels and lower levels similar to the 2020 crop, when futures rallied above $8 to ration demand. It seems the USDA is indicating corn demand should remain strong for the rest of the season, which might mean upside price potential is stronger than downside risk for the next several months.
Based upon information from growers I spoke with the past few weeks, it seemed likely the USDA could decrease the national average yield. I suspect the lower-than-expected yields in the west and inconsistent yields in areas previously considered high potential were the main reasons for the reduction.
Moving forward, bean price direction will be completely dependent on Chinese demand and South America’s weather. The USDA’s total bean export levels are currently below the latest 4-year average in years that did not include the trade war. Plus, it seems the USDA and the trade think Brazil will grow a massive record crop this upcoming season. However, this will only happen if there are no weather issues in the Southern Hemisphere. Next year will be the third year that La Niña will be present, which increases the chances of weather problems. Any perceived issues with growing conditions could cause volatile price swings.
The chart below provides several scenarios based on different supply and demand outcomes (highlighted in blue) to the U.S. crop.
Due to the yield decreases, the possible carryout numbers are not as cumbersome as expected prior to the report. Export demand is key, and it will be watched very closely by the market. While limited export demand could push prices lower, even a minor demand increase would likely spark a rally to help ration demand.
Moving forward demand for U.S. crops will be driving market direction as well as South American weather. Any potential crop loss in the Southern Hemisphere may mean increased demand for U.S. supply and higher prices to ration demand.
Please email firstname.lastname@example.org 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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